If You’ve Been Paying Your Student Loans, You May Be Entitled To A Refund

Millions of borrowers who have been making payments on their student loans during the last year may not realize that they are entitled to a refund.

The CARES Act, which Congress enacted last year, temporarily suspended all payments on government-held federal student loans. President Trump extended the moratorium twice to the end of January 2021, and when President Biden took office, he extended the relief further to September 30, 2021. In total, borrowers will have had nearly 19 months of suspended student loan payments by October — and it’s possible the relief could be extended even further.

Around 90% of student loan borrowers have taken advantage of the suspension and have not made payments on their student loans. But several million borrowers have continued to make payments, anyway, even while they have not been required to do so. These borrowers may be entitled to a full refund of the payments they made, if they want their money back. According to the Department of Education, “Any payment you made during the suspension of payments (beginning March 13, 2020) can be refunded.”

Of course, some student loan borrowers may not need or want a refund of their payments. Since the CARES Act also temporarily froze all interest, effectively resulting in a 0% interest rate for government-held federal student loans, borrowers who have been repaying their loans under a Standard, Extended or Graduated repayment plan and had no outstanding accrued interest prior to the suspension have been able to apply their entire payments to their principal balance. This would effectively result in an earlier payoff date and significant interest saved over time. But borrowers in this situation who encounter a sudden financial hardship may find it useful to get those payments returned, particularly if they have no other savings or emergency fund that they can tap into.

Furthermore, for other borrowers who are on track for student loan forgiveness programs, making payments during the suspension period may not have much benefit. Under the CARES Act and the subsequent extensions, the months of suspended payments would count towards loan forgiveness terms under Income-Driven Repayment (IDR) plans and Public Service Loan Forgiveness (PSLF), as long as all other eligibility criteria are met. In other words, the months would still count towards the 20-year or 25-year loan forgiveness terms for IDR plans, or the 120 qualifying payment term for Public Service Loan Forgiveness, even if no payments are made. The same is true for borrowers who are in rehabilitation plans for their defaulted federal student loans. Making payments during the suspension period does not accelerate the loan forgiveness or rehabilitation term, so these borrowers may find it useful to request a refund of their payments prior to October.

The Department of Education encourages borrowers interested in a refund to contact their loan servicers for more information.