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Should you request a refund on student loan payments made during the pause? Expert says 'not yet'

Student loan borrowers stage a rally in front of The White House to celebrate President Biden cancelling student debt and to begin the fight to cancel any remaining debt on August 25, 2022 in Washington, DC.
Paul Morigi | Getty Images Entertainment | Getty Images

President Joe Biden said Wednesday that the pause on repayment, interest and collections, which was first enacted more than two years ago, will be extended "one final time" through Dec. 31.

The news was part of a larger announcement unveiling his highly anticipated plan for broader student loan forgiveness: The administration is canceling up to $10,000 in federal student loans for those making less than $125,000 a year for individuals or $250,000 for married couples or heads of households and up to $20,000 for Pell Grant recipients who meet the income threshold. Private loan holders are not included in the plan.

The administration has previously said that borrowers can get a refund for "any payment," including auto-debit payments, made during the moratorium (beginning March 13, 2020) on qualifying federal student loans. This option has been available to borrowers for at least a year.

Now, following the student loan forgiveness announcement, some borrowers are wondering how loan payments made during the pandemic could affect how much relief they will receive, if at all.

For instance, could requesting a refund on loan payments made during the extended freeze help borrowers maximize how much money the government will shave off their student loan debt?

"We still don't know," Scott Buchanan, executive director of the Student Loan Servicing Alliance, tells CNBC Make It

The Education Department said that borrowers who paid off all or part of their student loans since the start of the pandemic can still receive relief through the plan, the Wall Street Journal reports, but details on how refunds will be included in the forgiveness plan still remain unclear.

Until the department provides more information on the plan, here's what borrowers should know:

Who qualifies for the refunds?

  • Very few borrowers may benefit from the refunds: About 1.2% of borrowers continued paying off their loans during the pause, student loan expert Mark Kantrowitz told CNBC, based on repayment data from the Department of Education. To request a refund, borrowers should contact their loan servicer, the U.S. Department of Education said.
  • Payments on some loans, including Federal Family Education Loan (FFEL) Program loans, Federal Perkins Loans and private student loans are not eligible for refunds. To confirm that your loans are eligible, you can contact your service provider or the school you received your loan from.

Should I request a refund now if I made loan payments during the freeze?

  • "Not yet," Buchanan says. That's because the department has not given loan servicers specific guidance on how refunds on loan payments made during the extended freeze will be included in the loan forgiveness plan announced yesterday. 
  • Buchanan recommends borrowers "sit tight" and wait for more information from the department on how refunds will or won't be eligible for forgiveness, which he expects will be shared "in the coming weeks," so borrowers can make a smarter, more informed decision on how to maximize their forgiveness eligibility. 

Could a refund on my loan payments help me maximize the amount of relief I'll get?

  • It depends on which date the department is using to calculate borrowers' outstanding debt balance. For example, a refund requested after the date the government uses to certify outstanding debt could have "no effect" on the amount of forgiveness you'll get, Buchanan explains.
  • Borrowers could potentially maximize their loan forgiveness by requesting a refund on payments made during the moratorium if they fall below the $10,000 or $20,000 threshold, but "it's not clear yet," Buchanan says.

Check out:

Biden announces $10,000 student loan forgiveness plan—here's who qualifies

How to check if you qualify for Biden's new student loan forgiveness plan

Biden announces new plan to cut some student loan payments in half

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