Should you ask for a refund of student loan payments? | personal finance
Hundreds of thousands of borrowers have made payments on their state student loans since the deferral began in March 2020 and have taken the opportunity to repay their balances.
Now that the White House has announced plans to cancel up to $20,000 in student loan debt, some of these borrowers may be wondering how to get a refund. The idea is that refunding student loan payments could put money in borrowers’ pockets and maximize the amount of debt forgiven — but that might not be the best idea for everyone.
Here’s what you need to know.
Who can request a refund?
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More than 40 million borrowers were allowed to suspend their payments interest-free during the pandemic. The White House says up to 27 million people could be eligible for debt relief.
Eligible for a refund are those who made payments or paid off their federal loans during the interest-free deferral — in a lump sum or in a lump sum. All payments made since March 13, 2020 are eligible.
Private student loan payments are not included. It also does not make payments on some FFELP or Perkins loans.
Who should request a refund?
Qualifying borrowers whose loan balances are below their maximum lapse amount — $10,000, or $20,000 if you accepted a Pell Grant — and made at least one payment during the pause may rush to request a refund to ensure they can receive the greatest possible relief.
However, at this point, only borrowers who are in financial distress should be requesting payment refunds, says Scott Buchanan, executive director of the Student Loan Servicing Alliance.
Buchanan says borrowers cannot be sure they will actually benefit from a refund of payments made at 0% interest as full details of the loan cancellation program have not yet been released.
Just as the deadline for callable loans is set for those paid off before July 2022, Buchanan warns borrowers that the Department of Education could decide to cancel debt based on a past-date balance as well. In this case, refunded payments do not help borrowers to maximize their cancellation amount.
“What worries me is that people might withdraw money, spend it on something, and then it won’t count,” says Buchanan.
He advises borrowers to sign up with the Department of Education for updates on official information on when a refund can be requested – and if it’s even beneficial.
How do I request a refund?
Starting the process of getting a payment refund is relatively easy if you have the right information at hand. You need:
- The phone number of your credit service provider.
- your social security number.
- Payment confirmation numbers or bank payment information.
- The address you would like your refund to be delivered to.
You can likely find payment confirmation numbers on your credit provider account portal under your payment history. Each payment has a unique identification number that allows the servicer agent to accurately process your refund. You can find your bank transaction details or check numbers on your bank account portal.
The first step is to call your credit servicer. Your credit servicer may ask for your social security number to access your account. After they verify your account and identity, let them know you want to request a refund for payments made during the interest-free grace period.
Expect long hold times, Buchanan says.
The representative will ask you what payments you want refunded. In order for this to go quickly and smoothly, be prepared to provide them with the relevant payment confirmation numbers or transaction numbers.
You will also need to confirm your address on file: refunds can be made by check or electronically.
Then the representative will submit the application on your behalf and send you a confirmation.
When will I get my money back?
If you don’t receive your refund electronically, you’ll receive a check within six to 12 weeks. You will also see your loan balance increase by your refunded amount during this period.
The article Should you request a refund for student loan payments? originally appeared on NerdWallet.
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