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The companies that manage the Education Department’s $1.6 trillion student loan portfolio said they were being inundated with repayment requests from borrowers who made payments during the pandemic pause. The Department for Education has offered to refund people who continued to pay since the moratorium began in March 2020, but the policy went largely unnoticed until last week.
Borrowers began asking about repayments after President Biden said he would write off up to $10,000 in federal student loan debt and up to $20,000 for Pell Grant recipients, for people making less than $125,000 dollars per year, or less than $250,000 for married couples. Among the queries: What if they paid off their loans during the pandemic? Could they still be cancelled? How would this work?
So: Say you paid off the $8,000 balance on your loan during the pandemic. You can apply for a refund of this money and then apply for debt relief to clean up the ledger. That way, you can keep your $8,000 and continue paying off your loans. That is if you meet the eligibility criteria.
Who is eligible for the new plan to pay off $10,000 in student debt?
While most of the nearly 42 million people covered by the pause have not made payments since it began, about 9 million borrowers in good standing continued to send money, according to the Education Department. Borrowers have one year to apply for repayment. The agency has confirmed that eligible people who have paid off some or all of their debt in the past two and a half years could still qualify for discharge if they meet the income threshold.
However, there is nothing on the Education Department’s website that says that, which should give borrowers pause, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group that represents businesses which cover the payments of the educational debt.
There’s no guidance on the Department for Education website “about how refunds will work in relation to forgiveness. And given that the government is still building this plane after it takes off, I think it’s best to wait for a official guide,” he said. Buchanan said his members have received “tons” of refund inquiries lately. Several student loan servicers put the number in the tens of thousands.
Calculate how much of your student loan debt could be forgiven
“The sudden renewed interest in these repayments is, in part, people regaining faith in the student loan system,” said Michael Pierce, executive director of the Student Borrower Protection Center. He said the nonprofit spoke to borrowers early in the pandemic who tried to submit written applications a refund and were ignored. “I’d hate for the administrator capacity issues to make a fool of anyone who tells people they can trust this,” Pierce said.
Some payments made during the freeze were involuntary, the result of the department continuing to garnish wages from unpaid borrowers early in the pandemic. Some borrowers, especially those working to forgive public service loans, continued to pay out of mistrust.
Others, like Gray and Lauren Cole, saw an opportunity to get out of debt without paying interest. The couple from Gainesville, Ga., spent 2020 and 2021 paying off $40,000 in student loans that Gray acquired while studying kinesiology and ministry at Mississippi College.
“We were very fortunate that even while we were closed during covid, we were still able to work,” said Lauren Cole, 32, a user experience designer. “We had already been working hard to pay off our debts and we stayed committed.” When she learned of Biden’s cancellation plan, Lauren said she was happy for her friends who would benefit, but she certainly didn’t think she would be among them.
That changed after he saw a tweet from the Student Borrower Protection Center encouraging people who made payments during the break to apply for a refund. The nonprofit, which has advocated for debt cancellation, told borrowers to apply for repayment before applying for forgiveness.
Last Friday, the Coles called Gray’s service who said it would take six to 12 weeks to process the application and return $10,000 of the money they paid for their debt. “It was a little shocking at first, especially how easy it was,” said Gray, an Army chaplain. “The woman just pulled up the account and said, ‘Now you’re cleared for the 10 grand to get back on your way.’ We’ll try to pay it forward as best we can with our community.”