Credible takeaways
- Some borrowers who requested a refund for student loan payments made during the COVID-19 payment pause are now being asked to pay it back.
- If your student loan balance was forgiven under an income-driven repayment plan or PSLF, it’s possible you overpaid, and you might receive a refund.
- You may also be eligible for a refund if you lost money as a result of a student loan forgiveness scam.
Getting a student loan refund may seem like a good thing, but that’s not always the case. If you received a refund check for making student loan payments during the pandemic payment pause in anticipation of Biden’s forgiveness plan, the government wants it back.
However, not all student loan refunds need to be repaid. If you overpaid under an income-driven repayment (IDR) plan or fell victim to a forgiveness scam, you may still be eligible for a refund. Here’s what you need to know.
Why are some borrowers getting refunds?
Pandemic student loan payment refunds
When the federal government paused student loan payments during the COVID-19 pandemic on March 13, 2020, it meant borrowers didn’t need to pay, but could if they chose to. Many who did hope to benefit from anticipated debt forgiveness — up to $10,000 for eligible borrowers and $20,000 for Pell Grant recipients under President Biden’s proposal.
Those who paid during the pause were eligible for refunds to prevent losing out if their debt was forgiven. This applied specifically to borrowers whose payments reduced their total loan balance below the forgiveness threshold.
Borrowers could choose to have all their payments refunded or just a portion of them. The deadline to request these refunds was Aug. 28, 2023.
For example: A borrower who had a $14,000 balance and who paid off $5,000 during the pandemic might have chosen to get the entire $5,000 back or may have opted to get a refund of only $1,000 so they'd end up with a $10,000 remaining balance and could have the whole amount forgiven under President Biden’s plan.
IDR payment count adjustment refunds
In April of 2022, the U.S. Department of Education modified the rules for some income-driven repayment (IDR) plans to make it easier for borrowers to qualify for federal student loan forgiveness.
One of the changes resulted in some borrowers getting a one-time adjustment of payments they had made on their IDR plan to fix past problems with accuracy and payment tracking. The adjustment will count more months toward forgiveness, including periods of forbearance or deferment under certain circumstances.
If the adjustment resulted in you having more payments than necessary to qualify for forgiveness, you’re entitled to a refund for overpayment. You won’t need to request the refund; instead, you’ll be contacted by the office of Federal Student Aid. This refund will not have to be repaid.
Good to know
The IDR payment count adjustment also applies to borrowers who qualify for Public Service Loan Forgiveness (PSLF). The PSLF program forgives your remaining loan balance after 10 years of payments.
Refunds for loan forgiveness scams
Unfortunately, many scammers target vulnerable student loan borrowers with false promises of debt relief or debt forgiveness — and those scams have only ramped up since the Biden administration began discussing loan forgiveness as an option.
The good news is that the Federal Trade Commission (FTC) filed a complaint against operators of Mission Hills Federal and Federal Direct Group, alleging that they had scammed students out of hundreds or thousands of dollars with the promise of loan relief or by claiming to have taken over servicing their loans.
The FTC announced in March 2024 that it’s sending $4.1 million in refunds to those who were financially damaged by these schemes. A total of 27,584 consumers will receive the payments and should follow the instructions on the check to cash it within 90 days. These refunds also will not have to be paid back
Important
If you fell victim to another type of scam, report it to the Federal Trade Commission and consider contacting your bank or credit card company to find out what options you have to recover your money.
Related: How To Get Student Loan Forgiveness
Do I have to pay my refund back?
Only borrowers who requested a refund for making student loan payments during the pandemic pause are responsible for paying the refunded amount back.
Loan servicers have been notifying these borrowers that their refunded balance has been added back onto their accounts — along with any interest that accrued since the end of the payment pause in September 2023. Anyone who this happened to now must begin repaying this money.
Related: 8 Ways To Lower Your Student Loan Payments
Steps to pay back your student loan refund
Contact your loan servicer first
You may have been assigned to a new loan servicer since the pandemic pause ended, so you'll need to make sure you’re paying the right party. Your servicer can also explain to you exactly how much you owe based on the refunded amount and interest that you have to pay back, so you can make a plan.
Make bulk payments
If you have the cash, you can make a lump-sum payment — or several lump-sum payments — to try to pay back the money as quickly as possible. This can help you avoid accruing more interest on the balance that was added back onto your account.
Ideally, some borrowers may not have spent most or all of the refunded money. If that's the case, the funds can be diverted right back to the loan.
Consider an IDR plan
If you're having a hard time making your payments, you also have the option to choose an income-driven repayment plan. IDR plans allow your payments to be set at a percentage of your income, so they become more affordable.
You can also have your loan balance forgiven after a certain number of on-time payments, depending on the IDR plan you pick:
Rebecca Safier has contributed to the reporting of this article.
