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Wednesday, September 14, 2022

Student-loan borrowers will automatically receive refunds on pandemic-era payments if they qualify for Biden's debt relief

                                                                                                                                                                                                             Sep 14, 2022
By Ayelet Sheffey
College graduation photo
Getty Images

    President Joe Biden's Education Department quietly posted new guidance on the payment refund process for student-loan borrowers.

    After Biden announced $10,000 to $20,000 in debt cancellation for federal borrowers making under $125,000 a year at the end of August, many borrowers who were unsure if relief was ever coming — and decided to make payments during the payment pause — wanted refunds. Up until this point, the department said that any borrower who wants a refund could call their student-loan servicer to initiate the process, but now, some borrowers might not need to take any action at all to get their money back.

    In an FAQ posted on with details on accessing Biden's debt relief, the department recently added a refund section explaining that borrowers can automatically receive a refund for payments they made during the pause if:

    • You apply for and receive loan forgiveness through Biden's plan.
    • Your voluntary payments during the pause brought your balance below the maximum amount of relief you would have been eligible to receive, but didn't pay off your balance in full.

    "For example," as the department wrote in the FAQ, "if you're a borrower eligible for $10,000 in relief; had a balance of $10,500 prior to March 13, 2020; and made $1,000 in payments since then—bringing your balance to $9,500 at the time of discharge—we'll discharge your $9,500 balance, and you'll receive a $500 refund."

    Other borrowers can still receive refunds through the regular process of contacting their loan servicer, but the department noted that if borrowers consolidated their loans prior to March 13, 2020, refunds are not available for payments made prior to consolidation.

    The application form for student-loan forgiveness is expected to go live in early October and the department said it should take four to six weeks to process the forms and make the changes to borrowers' balances. Mike Pierce, the executive director of  the Student Borrower Protection Center, an advocacy group, previously told Insider he was concerned with the administrative hurdles accompanying applying for relief, and he said in a statement that the automatic refunds are "a positive and necessary step for fulfilling President Biden's historic promise to cancel student debt."

    "Automatically providing these refunds will ensure that borrowers are made whole if they made payments during the payment pause without having to rely on the whims of abusive and ineffective servicers to access this relief," he said in the statement. "We're glad to see that the Department understands the importance of automation and maximizing relief to borrowers. We urge them to deliver the rest of Biden's promised debt cancellation by making it all automatic."

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