Millions of student loan borrowers will receive automatic refunds soon on loan payments made during the Covid-19 pandemic, the U.S. Department of Education shared on their website earlier this week.
The news comes less than a month after President Joe Biden's historic student loan forgiveness announcement: 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.
In August, Biden also extended the pause on repayment, interest and collections, which began in March 2020, "one final time" through Dec. 31.
About 9.1 million federal student loan borrowers have made at least one payment between April 2020 and March 2022, according to the Office of Federal Student Aid. Payments made since March 2020 on federal student loans eligible for the pause should now be refundable, higher education expert Mark Kantrowitz told CNBC. Commercially held Federal Family Education Loans (FFEL), however, which were not eligible for the pause, won't be eligible for the refund.
Per the department's website, those who are eligible for debt cancellation will automatically receive a refund if:
- "You successfully apply for and receive debt relief under the Administration's debt relief plan, AND"
- "Your voluntary payments during the payment pause brought your balance below the maximum debt relief amount you're eligible to receive but did not pay off your loan in full."
For example: If you're a borrower eligible for $10,000 in relief, had a balance of $10,500 prior to March 13, 2020 and paid $1,000 toward your loans during the pause, bringing your balance to $9,500, the department will discharge your $9,500 balance, and you'll receive a $500 refund.
"Anyone who has interacted with the student loan system in this country knows that automatic relief programs are the only relief programs that work," Mike Pierce, the executive director and co-founder of the Student Borrower Protection Center, said in a written statement.
An Education Department spokesperson declined to provide additional details on the plan, including how refunds will be distributed, except to tell CNBC Make It that more information about the loan forgiveness program would be shared "in the coming weeks."
The nearly 1.9 million borrowers who paid off their loans during the pause and those who refinanced their student loans during the pause into private loans, such as those offered by SoFi or CommonBond, do not qualify for automatic relief but can contact their loan servicer until Dec. 31, 2023 and request a refund, according to the department's website.
The application for loan forgiveness will become available in early October, a department spokesperson told CNBC Make It, and applicants should see relief 4 to 6 weeks after submitting their paperwork.
Borrowers are advised to apply before Nov. 15 in order to receive relief before the payment pause expires on Dec. 31, the spokesperson added, but borrowers who don't apply before the Dec. 31 deadline will still be eligible for relief.
Check out:
Student loan forgiveness: Borrowers could see relief before December, Biden admin confirms
Borrowers react to student loan forgiveness: 'A huge weight has been lifted off of my shoulders'
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