Student loan forgiveness and payments made during Covid

There is a buzz in the air amongst the 40+ million people in the United States who have student loans. The Biden administration announced on August 24th, 2022 that there would be broad loan forgiveness for federally held student loans. Up to $10,000 per person forgiven for regular student loans and up to $20,000 for those with Pell grants. I strongly recommend you go read the official announcement for more details if you think there’s a chance this could apply to you. Unless you fall into the category of what I’m about to talk about next, there’s nothing you need to do right now – no action to take. Just wait and be patient until more information is released.

However, some of us (myself included) fall into the category of people who have either paid off their student loans or just made some payments during Covid that would put you below the $10k or $20k forgiveness threshold. When I first heard about the forgiveness I felt some guilt/frustration that we decided to pay off our student loans back in February when we knew this could be a possibility in the future. To make sure this is clear – I was very happy this is happening regardless of what I do/don’t get from it. When I was doing more reading I learned about an interesting possibility – getting a refund on payments made during Covid and those potentially being eligible for forgiveness. There’s two parts to this and I’m only mostly certain of the first part currently.

DISCLAIMER – I am not a financial advisor nor do I have the background/authority/qualifications to give financial advice. I’m outlining my reasoning below and talking through the steps/actions I have taken. Do your own research and make decisions based on your own personal situation.

Part 1: Get payments made during Covid refunded

On it explicitly says the following:

“You can get a refund for any payment (including auto-debit payments) you make during the payment pause (beginning March 13, 2020). Contact your loan servicer to request that your payment be refunded.”

It doesn’t say any explicitly about paid-in-full loans but this should mean that if you request a refund for any payments made since March 13th, 2020 that refund request will be approved. My wife and I both called our previous lenders (Nelnet and Fedloan) yesterday (Aug 25th, 2022) to request refunds and they were both very helpful/friendly and submitted those refund requests. At this point it will be up to the Department of Education to approve or deny the refund request but based on the language above I would expect it to be approved. If approved, then you would get a check mailed to you for the refund amount and your loan balance would either increase or be reinstated (if previously paid-in-full).

Part 2: Get $10k (or $20k for Pell grants) of your loans forgiven (?)

This is the part where there’s more unknowns. I haven’t seen a government source confirm that refunded payments would be eligible for the announced student loan forgiveness. However, over on the StudentLoans subreddit I did see this question addressed by /u/Betsy514. For some background, that Reddit user is Betsy Mayotte. She is the President of The Institute of Student Loan Advisors and you can find more information about her credentials on their website. She has been a moderator of the StudentLoans subreddit for many years and all the information I have ever seen her post has been credible and if not immediately sourced, usually ends up being 100% accurate. The reason I bring this up is because in the recent thread about the administration’s loan forgiveness program she has put together an FAQ section to answer many of the most asked questions she’s seen in the last few days. In that FAQ she says the following:

If I paid off my loans during covid can I get a refund and then get forgiveness?
This was a surprise to me but apparently the answer is yes. But only payments made since March 2020 when the covid waiver started.

…and then goes on to say:

UPDATED: If you have paid in full loans or owe less than the forgiveness amount you are eligible for you will NOT get a refund. Exception is if you paid during the covid waiver – you can get those payments back by calling your loan servicer. there is a backlog for refunds so you receiving the money could take a while but the change to your balance should happen fairly quickly.

Currently she has not given a source for that answer, but I have pretty strong confidence she has multiple contacts who are in-the-know who might not be able to talk about it in an official capacity so far. Take it with a grain of salt for sure, but this seems like a good case for being hopeful this will work out.

Final Thoughts

Is this all guaranteed to work? Definitely not – there’s a lot of information I’d like to see shared by the administration and I believe that it will be shared in the coming weeks. However, I also see very little downside to taking action on Part 1 above and requesting a refund for payments made since Covid started if you currently have a loan balance below $10k (or $20k for Pell grants). If the loans end up being forgiven, AWESOME. If not, just send them the money back – no harm no foul.

Current questions I have and unknowns (I will update this post when I find answers)

  1. Is there a deadline to when your student loan account must have a balance to be considered for forgiveness?
    • This is important because the refund process can take up to a couple months to complete. Betsy mentions above that even though the refund process can take awhile to fully complete, your loan balance could change rather quickly. However, every lender could be different so nothing is certain there.
  2. Is there confirmation that refunded student loan payments would be eligible for forgiveness at all?
    • Betsy says yes but I’d love to see an official government answer to this question