Do I Have To Repay My Student Loan Refund?

If you received a student loan refund for payments you made during the COVID-19 pandemic, the Department of Education wants it back — with interest. 

The government offered federal student loan refunds for payments made during the payment pause with the expectation that President Biden’s loan forgiveness initiative would be enacted. Now that the Supreme Court struck down the loan forgiveness plan and the payment moratorium ended, borrowers who received a refund are again on the hook for that amount. 

Here’s a closer look at this complicated situation, including tips on how to pay back your refund and manage your student loans. 

Who got student loan refunds?

A few months into the student loan payment pause, the government announced that borrowers could request a refund for payments they made if they needed financial relief. Specifically, borrowers could get a refund for any federal student loan payments they made between March 13, 2020 and Aug. 28, 2023. 

After the Biden-Harris administration announced its plan for loan forgiveness in August 2022, student loan refunds became automatic for some borrowers who paid during the payment pause and met certain criteria. First, you had to be eligible for Biden’s loan forgiveness. 

Second, you had to have paid your loan balance below the loan forgiveness threshold, which was $10,000 or $20,000, depending on whether you got a Pell Grant in college. Let’s say, for example, that you owed $12,000, paid off $7,000 during the pandemic, and were eligible for $10,000 in forgiveness. In this scenario, you could have received an automatic $5,000 student loan refund so that you could get your full $10,000 in loan forgiveness. 

If you didn’t receive an automatic refund at the time, you were also able to apply for a refund during this time.

Why do I have to repay my refund?

The Supreme Court struck down Biden’s loan forgiveness plan in June 2023, stating that the HEROES Act did not authorize the Secretary of Education to enact widespread loan cancellation. That means borrowers who got a student loan refund did not get the promised amount forgiven.

Instead, any refunds that borrowers received were again tacked onto their principal balance when the student loan moratorium ended in the fall of 2023. Rather than receiving loan forgiveness, some borrowers have found themselves in more debt than before. 

How to pay back your refund

Although student loan refunds may have seemed like a good idea at the time, they’ve left many borrowers in a tough financial situation. If you didn’t already spend your refund, consider paying it back in a lump sum. That way, you can reduce your principal balance and avoid paying additional interest charges on the amount. 

If you no longer have your refund, explore your options for federal student loan repayment plans. Some options include the standard 10-year plan, extended repayment, graduated repayment, and income-driven repayment (IDR). 

An income-driven repayment plan might be your best bet if you’re having trouble affording your student loan payments. The new SAVE plan, for instance, could make your monthly bills more affordable due to the way it calculates discretionary income. Plus, the government will pay any interest charges that your monthly payments don’t cover. 

Starting in July 2024, the SAVE plan will also cut undergraduate loan payments in half and offer loan forgiveness after 10 to 25 years, depending on your original principal balance and the type of loans you have. 

What should I do as student loan repayment restarts?

You might be thinking about how to adjust to a new financial reality as federal student loan payments restart after a three-and-a-half year hiatus. Here are some steps that can help. 

Review your loan details

Sign into your Federal Student Aid (FSA) account to see your loan balances, interest rates, and other information. 

Find out who your loan servicer is

Your loan servicer may have changed over the past few years, so confirm your servicer in your FSA account and provide them with up-to-date contact information. 

Check out your repayment plan options

This loan simulator tool from Federal Student Aid can help you compare your monthly payments and long-term interest costs on different repayment plans. 

Re-enroll in autopay

Setting up automatic payments can help you avoid missing payments and score you a 0.25 percentage point discount on your interest rate. You might have to re-enroll in autopay, even if you were using it before the payment pause. 

Explore alternative loan forgiveness programs

Depending on your profession or where you work, you could qualify for a forgiveness program like Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, or repayment assistance from your state. 

Consider refinancing

If you're unhappy with the interest rates or terms of your current loans, you might consider refinancing. Doing so could help you lower your interest rate or reduce your monthly payment, depending on your circumstances.

However, be cautious refinancing federal loans, as doing so means you'll permanently lose access to federal protections like forgiveness programs and income-based repayment plans.

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Student loan refund FAQ

What if I can’t afford to make payments when they restart?

If you can’t afford to make payments when they restart, consider signing up for an income-driven repayment plan, such as SAVE. Income-driven plans adjust your payments to a percentage of your discretionary income while extending your loan terms to 20 or 25 years.

Depending on your income, your monthly payment could be as low as $0. Applying to postpone payments through deferment or forbearance is another option, but your loans will likely still accrue interest during this time.

Is there a grace period after payments restart?

The federal government is offering a one-year “on-ramp” after payments restart. During this time, missing payments won’t cause your loans to go into delinquency, default, or collections. The government also says it won’t report missed payments to the credit bureaus.

However, interest will keep accruing on your balance during this time, so if you can afford to, it’s best to make payments as normal.

How does the student loan refund affect payment counts for IDR and PSLF?

Getting a student loan refund should not affect your payment counts for loan forgiveness under an IDR plan or the PSLF program. You should get credit for all the months during the emergency forbearance, even if you didn’t make payments or got a student loan refund.

Will student loans eventually be forgiven?

At this time, it’s unclear if the federal government will offer any widespread cancellation for student loans. The Biden-Harris administration has suggested that it will seek to authorize loan forgiveness under the Higher Education Act of 1965 and will be putting together a proposal during a period of “negotiated rulemaking” between October and December 2023.