What’s going on with student loan refunds?

In June 2023, the Supreme Court struck down the Biden administration’s plan to cancel up to $10,000 in student loans for qualifying borrowers, and up to $20,000 for Pell Grant recipients. This pivot away from Biden’s forgiveness plan might have put a kink into the repayment strategy of millions of borrowers who received a student loan refund during the pandemic payment pause.

Here’s what’s happening with student loan refunds, and what to do if you were reimbursed for amounts you paid during the payment freeze.

Who got a student loan refund?

During the COVID-19 payment pause, eligible federal student loan borrowers were not required to make their monthly payments. Borrowers who did make payments on federal loans between March 13, 2020, and Aug. 28, 2023, were eligible for a refund on any payments made during this time frame.

Student loan refunds were not sent to all borrowers automatically, but qualifying borrowers could request a refund through their loan servicer.

You may have asked for a student loan refund for various reasons, including:

• You needed additional cash flow: Perhaps you requested a refund to apply those funds toward other essential expenses like housing payments, groceries, car payments, or other bills.
• You were pursuing federal loan forgiveness: Since the goal of forgiveness is to pay the least amount toward your loans as possible, you may have hoped for a larger portion of your remaining balance to be forgiven.
• You wanted to maximize your forgiveness amount: You may have wanted to bring your loan balance back up to the maximum amount you would’ve qualified for if Biden’s student loan relief plan passed.

Can I still request a refund?

The Department of Education's refund program ended on Aug. 28, 2023. If you didn’t request a student loan refund before this date, you’ve missed your window.

Additionally, the refund opportunity only applied for federal student loans, not private student loans. Borrowers who made private student loan payments during the pandemic payment pause were not eligible for the refund.

Check out: 7 alternatives to private student loan forgiveness 

Do I have to pay back my refund?

As refunds were being processed and issued, the Supreme Court decided against the Biden administration’s $10,000 to $20,000 student debt relief effort on June 30, 2023. If you received a student loan refund, you’re now responsible for paying it back.

Since Biden’s forgiveness plan is off the table for now, any amount that was refunded to you was added back to your unpaid loan balance. Additionally, this higher principal balance has been accruing interest since the 0% interest program ended in September 2023.

If you’re unsure how much you still owe on your federal student loans, reach out to your loan servicer immediately. Your servicer’s contact information is located on your monthly student loan billing statement. You can also find your servicer through your StudentAid.gov account.

Repaying your loan

After confirming the updated unpaid balance on your loan accounts, consider how you’d like to repay it. The approach that works best for you depends on your unique situation.

Here are some options for paying back your student loan refund and the rest of your loan balance:

• Make a lump-sum payment: If you haven’t spent your student loan refund yet, you can apply it toward your principal balance in a lump-sum payment. This one-time payment can have a big impact on your student debt as a whole. Not only does it dramatically lower your principal balance in one fell swoop, you’ll save money on interest charges, too.
• Explore an income-driven repayment plan (IDR): IDR plans can be an effective way to reduce your monthly payment, sometimes to as little as $0 per month. There are four IDR plan options, all of which use your income and family size to calculate your payment amount. Depending on your plan, your payment might be 10% to 20% of your discretionary income. Repayment terms are typically 10, 20, or 25 years, after which your unpaid balance is forgiven.

To learn more about your repayment options, contact your loan servicer. They can walk you through your options if you’re struggling to pay off your loans. They can also clarify other student loan forgiveness programs you might qualify for, like Public Service Loan Forgiveness (PSLF).

What if I overpaid?

A one-time payment count account adjustment is in effect for borrowers repaying their loans via an income-driven plan. This adjustment updates your payment count to give you repayment credit for certain periods, like the three years of mandatory administrative forbearance during the pandemic.

This benefit could help some borrowers move the needle closer to loan forgiveness. The adjustment for eligible borrowers is currently in progress. The Department of Education expects it to be completed by July 1, 2024.

Since payments restarted in October 2023, there’s a chance you might be currently making unnecessary loan payments if your adjustment hasn’t been applied yet. This is particularly true for borrowers who were already nearing the end of their term before the pause.

If you’re in this situation, rest assured that you’ll get your money back. The Department of Education will issue a refund for the total amount that was paid in excess of the payment count needed for loan forgiveness.

Will student loans be forgiven in the future?

Although the Supreme Court blocked the Biden administration’s sweeping debt relief plan, there are still opportunities to have your loans forgiven.

For example, a new forgiveness benefit under the Saving on a Valuable Education (SAVE) repayment plan goes into effect in February 2024. Previously, forgiveness under SAVE required 20 or 25 years of repayment, but this new benefit will accelerate loan forgiveness for some borrowers.

With the new SAVE benefit, if your original loan balance was $12,000 or less, you’ll receive automatic loan forgiveness after making just 10 years of qualifying payments. If your original balance was more than $12,000, the finish line to forgiveness increases by one year for every $1,000 you owe. So if you originally borrowed $15,000, you’ll be eligible for loan forgiveness after 13 years.

The state of student loan forgiveness is continuously changing — at the very least, eligible borrowers can look forward to this new SAVE benefit.

Check out: Student loan forgiveness: What are my options? 

When does interest start to accrue again?

Interest on federal student loans was reactivated on Sept. 1, 2023. This means that when the payment pause lifted in October 2023, your loans had already accrued some interest.

If you’re dissatisfied with how much you’re paying in interest or want to work with a new lender for your student loans, you have options. Borrowers with strong credit and education loans can consider student loan refinancing.

Refinancing might help you access competitive interest rates under new repayment terms, but it’s generally best for private student loans. If you refinance your federal loans, the debt is no longer eligible for federal benefits and protections moving forward.

Make sure you’re willing to lose access to federal programs like income-driven repayment and forgiveness before refinancing your federal loans.