More than 9 Million Student Loan Borrowers Are Likely To Benefit From Newly Announced Debt Relief
September 13, 2022 | WASHINGTON, D.C. — Following President Biden’s historic student debt cancellation announcement, the U.S. Department of Education quietly revealed this week that borrowers who are eligible for debt cancellation and made student loan payments on their loans during the COVID-19 payment pause will automatically receive a refund on any amount of money they paid, up to the amount of cancellation for which they are eligible.
Approximately 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. The changes the Department announced this week clarified that borrowers who would have received cancellation on these payments will now have their money automatically refunded when they apply for cancellation. The nearly 1.9 million borrowers who entirely paid off their accounts during this time, including those who refinanced with a private lender, will not receive an automatic refund but can contact their student loan servicer to request a refund.
“This move by the Education Department is a positive and necessary step for fulfilling President Biden’s historic promise to cancel student debt,” said SBPC executive director Mike Pierce. “Anyone who has interacted with the student loan system in this country knows that automatic relief programs are the only relief programs that work. 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. 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.”
President Biden’s cancellation announcement dictated that borrowers who made voluntary or involuntary payments while under the payment pause could call their student loan servicer and request that money back. This policy change came directly after SBPC and many allied organizations conducted a mass awareness-raising campaign and funneled calls from borrowers to student loan servicers to request refunds, resulting in student loan servicers reportedly receiving hundreds of thousands of refund requests from borrowers looking to take advantage of the opportunity.
Importantly, although not automatic, refunds are available to borrowers who refinanced their student loans during the payment pause into private loans, such as those offered by SoFi or CommonBond. From the Department’s cancellation FAQ page, “refund requests can only be made by you and refunded to you, even if someone else made a payment on your loan.” Mechanically, when a borrower refinances their student loans, the company they refinance with pays off the balance of their loans. Borrowers are therefore able to request a refund of $10,000 or $20,000, and then also apply for cancellation of that amount after.
As an example of how these refunds work, if a borrower is eligible for $20,000 in relief, had a balance of $14,500 prior to March 13, 2020, and made $3,000 in payments since then—bringing their balance to $11,500—they can request a refund of the $3,000, which will be added back to their balance, bringing it back to $14,500. Once they are able to apply for debt cancellation, the Department will cancel the reinstituted total of $14,500. If a borrower does not proactively request a refund, the Department will automatically refund the $3,000 at the time the borrower applies for cancellation.
Another example: a borrower is eligible for $10,000 in relief, had a balance of $12,000 prior to March 13, 2020, and paid off their loan during the payment pause. This borrower can request a refund of $10,000, which will then be reapplied to the borrower’s balance, reinstating their federal student loan they paid off for the refunded amount and bringing the balance to $10,000. They can then apply for $10,000 in cancellation through President Biden’s student debt cancellation policy.
Although the administration will automatically issue refunds, borrowers who meet the income eligibility for debt cancellation should consider proactively requesting a refund from their servicer. This is especially true for borrowers who completely paid off their loans through voluntary payments or by refinancing with a private lender. Borrowers who have made voluntary payments but anticipate being eligible for student debt cancellation through other federal programs, such as the limited Public Service Loan Forgiveness waiver program, should also consider requesting a refund or reinstating their loans, in anticipation of having the entirety of their balance cancelled.
About Student Borrower Protection Center
The Student Borrower Protection Center (SBPC) is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. The SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.