Biden’s student loan forgiveness plan refunds borrowers who paid during the hiatus

The few Americans who continued to make student loan payments during a federal pause put in place at the start of the pandemic will now be eligible for refunds.

On Wednesday, President Biden announced a sweeping student loan forgiveness plan that will provide up to $10,000 in loan forgiveness to individuals with annual incomes below $125,000 or couples with incomes below $250,000. Those who received Pell Grants, a federal financial aid award for students from low-income households, may be eligible for forgiveness of up to $20,000.

The Department of Education clarified Thursday that those who paid off all or part of their federal student loans as of March 13, 2020, will still be eligible for forgiveness. Borrowers can request a refund by calling their loan servicer directly.

The student loan freeze stopped mandatory payments, accrued interest, and collections on federal student loan debt beginning March 13, 2020. The pause was a pandemic relief measure that has since been extended several times. As part of Wednesday’s announcement, the pause was extended until the end of the year, with payments resuming in January 2023.

President Biden said Wednesday that his administration will forgive up to $20,000 in federal student loans for tens of millions of Americans. Independent estimates suggest the plan will cost more than $300 billion over 10 years. Photo: Evan Vucci/AP

If you made a payment after August 24, 2022, and that payment brings your balance below the $10,000 or $20,000 threshold for which you qualify, the money will be automatically refunded.

Kate Blosser, a 29-year-old higher education marketing manager, immediately thought of her younger sisters when she first read Wednesday’s headlines. Both of her sisters will have $20,000 of federal student loans forgiven.

Ms. Blosser was one of the relatively few who continued to make student loan payments during the hiatus. She made $1,500 in payments over the past seven months, bringing her federal student loan balance down to $3,500.

Thursday morning, she called her loan officer to ask if the forgiveness would apply to the amount she had already paid.

“The whole thing was extremely smooth,” he said. “The girl on the phone was a total peach and said ‘Yes, I see you’ve made those seven payments.’ I’ll put in the paperwork and in six to eight weeks you’ll see a direct deposit.” The girl was like “I’m so happy for you.”

Only 1.2% of borrowers continued to make loan payments as of March 2022, according to student loan expert Mark Kantrowitz. His estimate is based on repayment figures released by the Ministry of Education.

About 37 million borrowers skipped nearly $200 billion in payments during the pause, the Federal Reserve Bank of New York estimates.

When this payment is returned to the borrowers’ student loan balance, they can then receive the amount of forgiveness for which they qualify, depending on whether they meet all other criteria.

As of the fourth quarter of 2021, about 32.3% of total borrowers had student loans with a balance of $10,000 or less, according to New York Fed estimates.

Some people may have paid off their loan in full during the pandemic, which puts them in a special situation, Mr. Kantrowitz said: Technically, they have stopped their loan. What are they doing now? Mr. Kantrowitz recommends calling.

“If they canceled their loan during the pandemic, contact your loan servicer and see what happens,” he said. “If you paid it off before the pandemic started, they’re out of luck.”

Write to Julia Carpenter at julia.carpenter@wsj.com

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