The Biden-Harris Administration announced student loan forgiveness. Many borrowers who had made payments during the payment freeze contacted their servicer.
The reason? Payments made during the pandemic relief period, which began March 13, 2020, were eligible to be refunded. While some borrowers received their refunds, some borrowers are still waiting. Now, the Biden-Harris student loan forgiveness plan is on hold pending a U.S. Supreme Court decision.
If you received a refund, are you ready to “catch up” if the forgiveness plan is overturned?
Biden-Harris Student Loan Forgiveness
The Biden administration released its plan for one-time mass student loan forgiveness. Federal student loan borrowers may be eligible for up to $10,000 in loans. Those who received a Federal Pell Grants may be eligible for up to $20,000.
These loans must be federally held. Borrowers must meet certain criteria to qualify. For individuals, the income threshold is $125,000. For married borrowers or those who file as head of household, the income threshold is $250,000.
The plan has been heavily criticized. Those who do not qualify for the plan have spoken out--those who did not borrow money to go to college, those who have already repaid their student loan debt, and those who did not attend college. Another criticism, the high-income thresholds to qualify.
The U.S. Department of Education started accepting applications. This was stopped when two cases reached the U.S. Supreme Court. Pending the outcome in the Supreme Court, as of this publishing, student loan forgiveness has been placed on hold.
Refund of Voluntary Payments
Since the start of the COVID-19 pandemic, several relief options have been offered to borrowers of federally held loans. Student loan payment relief has been offered since March 13, 2020, in the form of a payment pause and zero interest. Along with relief, borrowers have been able to request a refund of any voluntary payments made during the relief period.
The Biden-Harris forgiveness was announced during the COVID-relief period. As part of the pandemic relief offered to eligible federal student loan borrowers, any payments made during the relief period could be refunded. Before the U.S. Department of Education issued guidance to explain how the forgiveness plan would work, borrowers began contacting their student loan servicers requesting refunds. At one point, one servicer said it could take up to six months to process all the refund request.
Eventually, the Biden-Harris forgiveness guidance issued by the U.S. Department of Education. That guidance issued details of automatic refunds to borrowers who made payments on loans that would otherwise qualify for forgiveness.
How to Manage a Payment Refund While Forgiveness is in Limbo
You could be wondering how to best manage your refund situation. Here are our tips based on your situation.
Received a Student Loan Refund
You should save any student loan refund you received from voluntary payments made during the pandemic. If the Supreme Court upholds the forgiveness program, it's your decision how to best manage those funds. If forgiveness is overturned, it is recommended that you make a payment on your loan before the end of the pandemic relief period. That way you can take advantage of the zero percent interest on your loan.
Requested a Student Loan Refund, Waiting to Receive
Requested a refund but still waiting? Well, you should see if there is a way to cancel your refund request. If not, you will need to wait until you receive your refund. Once a decision is made about forgiveness, then you can decide the best way to manage those funds.
Have Not Requested Student Loan Refund
If you haven’t made the request yet, there’s no need to make the request. If Biden-Harris student loan forgiveness is upheld, your servicer will refund you any payments you made during the relief period for you to take full advantage of the one-time forgiveness opportunity.
For example, you had a loan balance of $10,500 when COVID-relief began. You made $2,000 worth of payment since March 2020 and your loan balance is now $8,500. If you qualify for a one-time forgiveness of $10,000, you will receive forgiveness of $8,500 (eliminating your student loan balance) and you will receive a refund of $1,500 from the voluntary payments you made.