The Department of Education is currently issuing payment refunds to borrowers who made federal student loan payments during the Covid-19 Pandemic.
This relief includes payments that were made by an automatic direct deposit and by manual withdrawal. Borrowers who have had wages garnished are also eligible for a refund.
All borrowers should check to see if they can qualify for a refund, including those that paid extra in an attempt to pay down their debt. If you are eligible for a refund, it is usually a good idea to request a refund on all payments.
Covid-19 Refund Basics
As of March 13, 2020, the Department of Education suspended payments and interest on all federally held student loans.
The interest and payment freeze is set to expire at some point in 2023, but the exact timing will depend upon when the Supreme Court rules on the one-time forgiveness plan.
Borrowers have the right to a refund on all payments made after March 13, 2020.
What About Student Loan Forgiveness? Even though the Department of Education has suspended payments and interest, borrowers can continue to work towards student loan forgiveness. This includes Public Service Loan Forgiveness and Income-Driven Repayment Forgiveness. Borrowers do not need to make payments to have the Covid-19 relief time count towards forgiveness.
In most cases, getting a student loan payment refund requires a phone call to your loan servicer.
Before calling to request a refund, borrowers should log in to their loan servicer account to pull up their payment history. Borrowers will need this information to verify that they receive a refund for all eligible payments.
To qualify for a refund, borrowers do not need to show a hardship or that the Covid-19 pandemic has impacted them. The only requirement is that they request a refund.
Why Should All Borrowers Request a Refund?
During the pandemic, many borrowers have continued to make payments on their student loans. These borrowers continued to make payments to take advantage of the 0% interest and reduce their balance.
The borrowers making extra payments should be applauded for their initiative, but there is a better way to manage federal debt during this time.
Rather than making payments, borrowers should set aside money for their federal student loans in a high-yield savings account. After the Covid-19 relief, borrowers can make a large student loan payment using the money set aside.
The minor inconvenience of asking for a refund is nothing compared to the many advantages.
The Big Exception: Before I spell out the reasons for asking for a refund, I should first share the one exception to the rule.
Don’t ask for a refund if you don’t trust yourself to handle the money responsibly. For some people, a large chunk of money just sitting in an account is too much temptation. If you recognize this about yourself, don’t request a refund unless you absolutely need the money.
The Advantages of Getting a Covid-19 Refund on Federal Student Loan Payments
Student Loan Forgiveness – There is growing support for some form of student loan forgiveness for borrowers. One proposal calls for the forgiveness of $10,000 worth of federal loans for all borrowers. Another leading proposal would wipe away $50,000 worth of debt. Even though both proposals are highly unlikely to become a reality, it is possible. If the improbable happens, failing to get a timely refund could cause borrowers to miss out.
Earn Extra Interest – The battle against student debt is a fight against interest. Each day student loans generate more interest. The payment and interest freeze is the one time that borrowers can afford to wait to make payments. Rather than paying down a student loan balance, the money can sit in a high-yield savings account working for the borrower. With some accounts now paying over 4% interest, this could be a valuable move for many borrowers.
Flexibility in an Emergency – This is the biggest and most important reason to get a refund on previous payments. The Covid-19 pandemic has created a lot of economic uncertainty. Some people are getting sick and unable to earn a living, while others keep their job but face massive medical bills. Those that stay healthy may see their jobs eliminated. A larger emergency fund is a valuable resource. When the interest freeze eventually ends, borrowers can reexamine their plan. For now, there is no harm in setting aside student loan payments for a rainy day.
Waiting for Automatic Refunds
Some borrowers may potentially qualify for automatic refunds.
Should the Biden administration prevail in the Supreme Court on the one-time forgiveness case, some borrowers would receive automatic refunds.
For starters, the Biden administration could lose its case. Second, the automated refund rules are somewhat complicated, and not all payments will necessarily be refunded. Most importantly, if you paid off your balance in full, the automated refund wouldn’t happen. However, if you request a refund, you can still qualify for the one-time forgiveness.
Refund Request Timeline
Servicers are currently telling borrowers that it will take about six to twelve weeks to process refund requests.
This extended timeline presents a challenge for borrowers. You will have to be patient while servicers process the request, but you can’t forget about the request either.
The best practice is probably to leave a reminder in your calendar to follow up on the refund request.
Frequently Asked Questions
If you paid off the full balance of your student loan during the Covid-19 relief, you can still request a refund on all payments made.
However, it is important to keep in mind that it means your loan account will be re-opened. It will show back up on your credit report, and the eliminated debt will be restored.
It depends entirely on how much you paid. Whether you paid $5 or $50,000, you can get a refund on all payments made after March 13, 2020.
If your servicer changed, you are still eligible for a refund. However, there may be headaches involved in making it happen.
If the two servicers are not accommodating your request, filing a complaint with the CFPB may help expedite the process.