This Single Mom Got a $9,000 Refund on Her Student Loans. You Can Too, But You’ll Have to Ask for It

A photo to accompany a story about requesting a refund on federal student loan payments made during the COVID-19 panemic Courtesy of Dyana King
Dyana King, a 30-year-old mother of two, paid off $9,000 of student loan debt in 2020. She requested a refund with her loan servicer after the Biden administration announced student loan forgiveness last week, and plans to stash away part of her refund in her emergency fund and invest some of it for her and her kids.
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Dyana King is getting a $9,000 refund on her student loans.

All she had to do was ask her loan servicer for the money back. 

“Contacting my loan servicer came with over an hour hold, but once on the line it was a super easy process,” says King, who qualifies for up to $10,000 in student loan forgiveness under Biden’s new plan. “She calculated how much I had paid and advised it would take 6-8 weeks to receive my check.”

King, a 30-year-old single mom of two and money coach, is one of many student loan borrowers who is eligible to receive a refund on any payments made during the pause on federal student loans. And while the option to make this request isn’t necessarily new, it’s become especially relevant now that most borrowers benefit from President Joe Biden’s new loan cancellation plan. That includes borrowers who paid off their student loans during the pause (which began on March 13, 2020). 

Biden said last week he will eliminate $10,000 worth of federal student loan debt for borrowers who make less than $125,000 annually. In addition to that, he promises to erase up to $20,000 in debt for those who borrowed money under the Pell Grant program, which mainly targets low-income students and families. The pause on federal loan payments has been extended through the end of the year.

How to Get a Refund on Federal Student Loan Payments

Around 500,000 people — or nearly 1% of all borrowers — continued making payments on their federal student loans during the pandemic, because, with interest also paused, they had the means to reduce their debts more quickly, according to higher education expert Mark Kantrowitz. 

But with the announcement of student loan cancellation, many of those same people who qualify for forgiveness want their payments back. 

“2020 was the year I tackled my student loans hardcore and actually paid them off in November 2020,” King says. “When the president announced the $10,000 cancellation, I thought ‘Hm, can I get a refund and be eligible?’”

To get a refund on any payments made since March 13, 2020, borrowers need to contact their loan servicer. Expect long wait times on the phone, and make sure you qualify for some level of cancellation before requesting your refund. 

“There’s confusion over the period for which refunds are available,” Kantrowitz says. “Payments made before that date, such as on loans made years ago, are not eligible.” He adds that there’s also confusion over whether a loan that was completely paid off during the pandemic is eligible for a refund. Though the Department of Education has not directly addressed this question, he says loans that were paid off are likely eligible for refunds. 

ANSWERING YOUR STUDENT LOAN QUESTIONS

Do you have questions about student loan forgiveness? Check out our FAQ, which we’re regularly updating as more details become available. If there are any questions we didn’t answer about Biden’s new student loan plan in the FAQ, email me at alex@nextadvisor.com and I’ll do my best to answer it. 

Once your refund is issued, it will be added back to your student loan balance. For example: If you currently owe $2,000 and paid $8,000 during the pause and request a refund, your balance will grow to $10,000 and qualify for forgiveness. However, if you know you’ll still have a balance after cancellation, King doesn’t recommend requesting a refund because it will only add more to what you owe.

But if it makes sense for your situation and you’re issued a refund, your next step is requesting cancellation for that new total under Biden’s plan. The application to do that won’t be live until early October, and the deadline to apply for student loan forgiveness is Dec. 31, 2023. 

It could take as long as 60 days for borrowers to receive their refunds, and that may affect the timing of the borrower’s application for student loan forgiveness, according to Kantrowitz. He suggests waiting to submit your application for forgiveness until you receive your refund, “since that may affect the amount of debt that is forgiven.”

“Borrowers who want to receive forgiveness before the restart of repayment should submit the application for forgiveness no later than Nov. 15, 2022,” he says. “This suggests that the borrower should submit a request for a refund by Sept. 15 to be sure that the refund occurs before Nov. 15, 2022.”

How King Is Using Her $9,000 Student Loan Refund for Other Financial Goals

King plans to hold onto her refund check until her student loan debt is officially deducted from her account later this year. It’s a move experts recommend. 

“I’ll be holding onto the check until I see with my own eyeballs that the cancellation went through,” she says. That way, she’ll still have the means to pay off the loans per her original plan if anything falls through with Biden’s cancellation plan. 

Once King receives her refund and if the cancellation goes through as announced, she plans to put some of it in her emergency fund and some toward investments for herself and her children. But what you put your refund toward may look different. Maybe you want to put that money toward a down payment on a house or increase your emergency fund at a time when inflation is high and everything is more expensive. 

Kantrowitz, along with other experts, suggest should keep your refund in a low-risk account that’s easy to withdraw from — such as a high-yield savings account — until there are more details about Biden’s plan or your loans are officially forgiven. There could be delays to the forgiveness process if it ends up being challenged in court by loan servicers or the GOP.

“Borrowers may need to use the money to pay down their debt further if they have some debt leftover after forgiveness occurs,” he says. “They may need to use the money to pay down their debt if the President’s forgiveness plan is blocked by the courts.”