Biden’s student loan forgiveness plan reimburses borrowers who paid during the break

Biden’s student loan forgiveness plan reimburses borrowers who paid during the break

The few Americans who continued to make student loan payments during a federal break enacted at the start of the pandemic will now be entitled to reimbursement.

On Wednesday, President Biden announced a comprehensive student loan forgiveness plan that will provide up to $10,000 in loan forgiveness for people with annual incomes of less than $125,000 or couples with incomes of less than $250,000. Those who have received Pell Grants, a federal financial aid award for students from low-income families, may be eligible for forgiveness of up to $20,000.

The Department of Education clarified on Thursday that those who have paid off all or part of their federal student loans since March 13, 2020 will still qualify for forgiveness. Borrowers can request a refund by calling the loan officer directly.

The student loan pause stopped mandatory payments, interest accrual, and federal student loan debt collection effective March 13, 2020. The pause was a pandemic relief measure that has since been extended several times. As part of Wednesday’s announcement, the break was extended through the end of the year, with payments scheduled to resume in January 2023.

President Biden said Wednesday that his administration will forgive up to $20,000 in federal student loan debt for tens of millions of Americans. Independent estimates suggest the plan will cost more than $300 billion over 10 years. Photo: Evan Vucci/AP

If you made a payment after August 24, 2022 and that payment brings your balance below the $10,000 or $20,000 threshold you qualify for, the money should be automatically refunded.

Kate Blosser, a 29-year-old higher education marketing manager, immediately thought of her younger sisters when she read the headlines on Wednesday. Both sisters will have $20,000 of federal student loans forgiven.

Mrs. Blosser was one of the few who continued to make student loan payments during the break. She has made $1,500 in payments over the past seven months, reducing her federal student loan balance to $3,500.

On Thursday morning, she called the loan officer to ask if the forgiveness would apply to the amount she had already paid.

“The whole thing was super smooth,” she said. “The girl on the phone was a total peach and she was like, ‘Yeah, I see you made those seven payments. I will arrange the paperwork and in six to eight weeks you should see a direct deposit. The girl was like, ‘I’m super happy for you.’

Only 1.2% of borrowers continued to repay loans in March 2022, according to Mark Kantrowitz, a student loan expert. His estimate is based on reimbursement data released by the Department of Education.

Some 37 million borrowers skipped nearly $200 billion in payments during the break, estimated the Federal Reserve Bank of New York.

When this payment is repaid to the borrowers’ student loan balance, they may receive the forgiveness amount they qualify for, depending on whether they meet all other criteria.

In the fourth quarter of 2021, about 32.3% of total borrowers had student loans with an outstanding balance of $10,000 or less, according to New York Fed estimates.

Some people may have paid off their loan in full during the pandemic, which puts them in a special case, Kantrowitz said: Technically, they eliminated their loan. What do they do now? Mr. Kantrowitz recommends picking up the phone.

“If they eliminated borrowing during the pandemic, contact your loan agent and see what happens,” he said. “If you paid before the pandemic started, they are out of luck.”

Write to Julia Carpenter at julia.carpenter@wsj.com

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