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Expanded PSLF Means Huge Refunds for Some Borrowers

The recent changes to Public Service Loan Forgiveness may mean that borrowers who had FFELP or Perkins loans get a huge refund.

Written By: Michael P. Lux, Esq.

Published:

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Expanded PSLF Means Huge Refunds for Some Borrowers

The recent changes to Public Service Loan Forgiveness may mean that borrowers who had FFELP or Perkins loans get a huge refund.

Written By: Michael P. Lux, Esq.

Published:

Affiliate Disclosure and Integrity Pledge

Last week’s bombshell announcement on expanded Public Service Loan Forgiveness was life-changing news for many borrowers. Borrowers who had FFEL and Perkins loans may now qualify for forgiveness. Those who were on the wrong repayment plan will also benefit.

The cherry on top of this great news is that many borrowers will receive refunds for previous payments.

For many years, advocates have been calling for PSLF changes to help borrowers who had issues with repayment plan or loan eligibility. Refunding prior payments is a surprise.

While these refunds are great news, several significant exceptions might prevent borrowers from collecting a refund check.

How Borrowers Who Qualify Under the Expanded Public Service Loan Forgiveness Get Refunds

To qualify for Public Service Loan Forgiveness, borrowers must make a total of 120 certified payments.

The recent changes mean that many borrowers will see a dramatic increase in their number of certified payments. Under the revised criteria, some borrowers will have qualified for PSLF many years ago.

Those who made more than 120 payments will receive a refund for the extra payments. The Department of Education has not released exact details on the refund procedure. However, if the refunds work like the Covid-19 refund requests, the refunds will be issued via the original payment method.

If you think there is even a chance that you qualify for a refund, I’d recommend calling your servicer to discuss your options for the refund. You don’t want them to mail a refund check to an old address.

Sherpa Thoughts: Why issue refunds on prior payments?

These refunds are likely an acknowledgment that the government recognizes that borrowers should have already been given forgiveness and that it was wrong to continue to collect payments.

Additionally, government attorneys may have concluded that refunds were necessary to avoid losing a lawsuit against former borrowers.

Exception: Borrowers Who Already Earned PSLF

Some borrowers consolidated their FFEL or Perkins loans many years ago. They may have already qualified for PSLF and had their loans discharged.

If this situation applies to you, there is no refund available for previous payments.

The only borrowers eligible for a refund are those who newly qualify for PSLF under the revised rules.

Exception: Payment Made Before Consolidation

Another major exception is that refunds will only be issued for payments made towards federal direct loans. This means that borrowers cannot get a refund for payments made towards FFEL or Perkins loans.

An example is the best way to explain this exception.

Suppose you made 60 payments towards an FFEL loan and then realized that it was not eligible for PSLF. At that point, you consolidated your FFEL loan into a federal direct loan so that you could eventually qualify for PSLF. Post consolidation, you made a total of 80 payments.

Under the expanded eligibility, the original 60 payments now count towards PSLF. Thus, you have made a total of 140 PSLF payments. Because you made the 20 extra payments towards a direct loan, they qualify for a refund.

However, if you didn’t consolidate and made all 140 payments towards the FFEL loan, you can still qualify for PSLF, but a refund isn’t available.

Exception: Parent PLUS Loans

A final exception to the refund policy is Parent PLUS loans.

Unfortuantely for many Parent PLUS borrowers, the news here is especially bleak.

To the surprise of many, the Department of Education did not include parent PLUS loans in the expanded PSLF rules. Parent PLUS borrowers can still consolidate to gain PSLF eligibility, but unlike FFEL and Perkins loans, prior payments towards a Parent PLUS loan won’t count.

Suggestions for Borrowers Hoping for a Refund

If there is even a chance that you qualify for a refund, I’d suggest the following steps:

  • Update your contact information. If your servicer issues a check, make sure it goes to the right place.
  • Send in updated Employer Certification Forms. Many borrowers didn’t send in an ECF for payments made towards FFEL loans because they knew the loans were not eligible. If you have old payments that are now eligible, make sure your public service is documented during that time.
  • Make copies of your payment history and all other loan documents. This step shouldn’t be necessary, but it might come in handy. The contract with FedLoan Servicing ends in December and many PSLF borrowers will have a new servicer. The Department of Education should have all of the necessary records, but if there is an issue, it helps to have backups.
About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

85 thoughts on “Expanded PSLF Means Huge Refunds for Some Borrowers”

    • Hi Pete,

      I’ve seen processing times all over the place, but its now been four months for you, which is a really long time. Now that the deadline has passed, you will definitely want to make sure that they don’t make a mistake with your August application. I think it is definitely fair to call your servicer to ask what is taking so long and when they expect to give you the results.

      Best of luck to you!

      Reply
  1. I am a Texas teacher who had my loans forgiven via PSLF, in addition they credited my bank account with money via the US treasury dept. Do I need to claim the credit/refund on my federal income tax? I assume I had overpaid on my loans.

    Thank you,

    Reply
    • Congrats on earning forgiveness, Keith. I can’t say for certain about state taxes, but on federal taxes, you should be in the clear. PSLF forgiveness is specifically included from income taxes, and the refund would be for extra payments you made, which also shouldn’t be taxed.

      Reply
  2. Hello, I had made student loan payments under FFEL since 2009 (about 160 payments) and now owe 35,000. I have worked in non profits since 2009. As I understand it, I need to consolidate to a Direct loan and apply for the PSLF before Oct.31. I then provide proof of employment for the waiver. I am worried about consolidating as it will increased my interest rate if it is not approved. If I consolidate the loan to the Direct loan, does this mean I would only get the rest of my outstanding loans forgiven (35K)? Appreciate guidance!

    Reply
    • Hi Robin, I can’t say for certain because I don’t have your full loan information in front of me. But it sure sounds like you are someone who should benefit from the limited waiver. By consolidating your FFEL loans into a federal direct loan before October 31, your previous payments can count towards the 120 needed for forgiveness. Your loan servicer should be able to talk you through the entire process to make sure you qualify and don’t miss the important deadline.

      Reply
  3. I applied under the “old” program years ago when it first started. I had originally been under one of the extended payment plans so most of my payments did not qualify. I applied under the new program and after a number of confusing communications I was finally told I had made 136 qualifying payments on 8/2. Interestingly, both my eligible and qualifying payments changed from April to August. On 8/29 I got the Congratulations! notice. Unfortunately, at that time all my payment records were deleted from the website. I got an email on 8/31 saying generally the same thing in plain English, giving the effective date and saying any payments after the effective date would be refunded.

    On Saturday, 9/10, I noticed a number of transfers to my checking account that did not add up to what I was thought the overpayment would be, but with the records gone there was no easy way to tell. I was thinking that I would be spending time on the phone, but this morning the rest of the payments showed up. Very nice surprise! I’m not sure why they did it that way, but after 25 years of federal employment nothing surprises me much, except why they deleted all my records so quickly. Folks might want to print everything so if they have any problems, they have a hard copy.

    Reply
  4. Further clarification on my previous comment: I have not received PSLF yet. I made monthly payments of approx. $600-$620 from 2012 until the COVID pause 4/2020. I believe 10/2017 would be my PSLF forgiveness date if they include the forbearance period from 9/2007 (when PSLF was first offered) to 6/2012 in the calculation. Thank you.

    Reply
  5. Hello, and thank for taking the time to share your knowledge on this tricky subject. I’m wondering if you have any updates or additional information about refunds based on the “forbearance steering” announcement from DoE on April 19, 2022. I was steered into forbearance for over a decade when I would have qualified for income-based reasonable payments. Eventually, I started paying back my loans under PSLF (I’ve been a federal employee since 2000). If my loans are forgiven as of 2017 due to the combination of repayment periods and extended forbearance since 2007, would I get a refund for the payments I made from 2017-2020?

    Reply
    • I don’t have anything new on the forbearance steering front. As for the extra payments, if you have over 120 certified payments, you can usually get a refund for the extra payments (FFELP loans would be a notable excpetion).

      Reply
    • Amy – I’m in the same boat as you and was wondering the same thing… it would seem that regardless of payment amount (or in the case of forbearance a zero dollar amount), once you meet the 120 payments, everything after that should be refunded, right? I mean the forbearance period payments either count as payments or they don’t. It seems logical to me. I have not received updates on my account for these periods though, the “sometime in fall” estimate is quite vague and unhelpful, but I understand Dept of Ed is now juggling a lot of different programs and applications. Here’s hoping it’s just around the corner.

      And Mr. Lux – thanks so much for all the helpful advice you give, it really is great to have this insight, so thanks for your efforts!

      Reply
  6. Thank you Mr. Lux for your guidance.

    If a person has met the 120 public service certified, eligible, qualified/approved work months with direct/consolidated loans, then any payments over the 120 month threshold, irregardless if between March 13 2020 and October 31,2022, would be a refund due? Even if for many years ago with different loan companies (e.g. navient, etc. which transferred to mohela)–there could be a refund due?

    It is my understanding that the Dept of Education would be tallying up all the approved, certified, eligible, qualified, dates? Thank you for your input.

    Reply
      • Thank you Mr. Lux for your kind response. This site is so helpful to navigate all the means testing complexities and very confusing PSLF waiver program.

        They are direct loans not the other FFEL loans. Been paying monthly student loan payments since 2008 onward.

        I realize that people can request a refund during the special COVID forbearance March 13, 2020-OCT 31,2022, but that refund is very different than the refund of over 120 months of qualified/certified work payment refunds.

      • I think I follow. Based on what you have shared, you probably should get a refund for all of the payments past the required 120. That said, it wouldn’t hurt to request a refund for the covid payments just in case.

  7. Hi Michael, I’ve been working in the public sector since 2006 but was never eligible for the PSLF because I had consolidated when I graduated in 2005. I took advantage of the temporary expanded PSLF by consolidating with Fed Loan Servicing and the remainder of my balance was forgiven. My original loans were all federal direct loans. Am I eligible for a refund for overpayment as I paid every month up until April 2022 either by 1) oeverpayment or 2) Covid-19 refund for auto-debit payments made from mid March 2020 through April 2022? Your advice/knowledge greatly appreciated. Sorry, let me clarify previous comment. I consolidated in 2005 and loans were eventually sold to Nelnet. Then I consolidated again with the temporary expanded PSLF (10/2021-10/2022) from Nelnet to Fed Loan Servicing in March 2022. I made about 189 on time payments (no missed payments whatsoever) and worked in the public sector full-time since 2006. Loans were forgiven at the end of July 2022.

    Reply
    • Hi Erica, congrats on getting PSLF! Also, I really appreciate the clarification, I was a bit confused based on your first comment.

      Anyway, to answer your question, I don’t think there is a refund coming your way. It sounds like the 2005 consolidated loan was a consolidated FFEL loan, and the Department of Education isn’t issuing refunds on those loans (because the extra payment went to the loan holder, who was not the Department of Education).

      That all said, given that you made 189 payments, it is definitely worth giving it a shot to see if you can get those extra payments refunded.

      Reply
      • Thanks for you thoughts and knowledge! Not sure if I came across as greedy because I am truly grateful my loans were forgiven but the amount that I paid from March 2020 through April 2022 amounted to $11,000 which is still a lot of money for me!

  8. Congratulations! Your loans were discharged through the Public Service Loan Forgiveness (PSLF) waiver with an effective date of December 14, 2021. Any payments after the effective date will be refunded. A letter was sent on August 29, 2022 regarding the discharge.

    I received this letter and did not have FFEL loans. I had 170 qualifying payments and was forgiven for the remaining balance. Will they refund the 50 payments? The e-mail above does not make any sense, do I need to call? Appreciate any insight has anyone else had this?

    Reply
    • First, congrats on earning PSLF.

      Second, the dates you listed and the number of payments you have listed don’t add up. If you had 170 payments, your effective date would be much longer ago. I’m assuming Mohela is your servicer b/c you are a PSLF borrower. They would be the first phone call to get it squared away.

      Reply

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