While the federal student loan, I continued to pay monthly to reduce my college debt. Now, with the student loan forgiveness on the table, I decided to ask my student loan officer for a refund to maximize my debt relief. But it also complicates my forgiveness situation.
I thought taking advantage of the temporary 0% interest rates was a smart move while payments were on hold. I had not anticipated that of President Joe Bidenwould include higher education debt relief.
Since graduate debt is included and I received a Pell grant, I should now receive up to $20,000 in relief. But in order to maximize forgiveness, I need to take a few extra steps to request a refund and increase my student loan balance. The biggest issue for borrowers in my position is making sure they get a refund before ask for forgiveness; otherwise, you may have to apologize twice.
I spent hours waiting with my loan manager and talking to a financial aid expert. Here’s what you can learn from my experience.
Don’t wait to request a refund
In order to receive the maximum forgiveness, I first had tofor some of the money I’ve paid during the pandemic – and experts say it’s worth doing soon. This would bring my balance back to my total cashback amount of $20,000.
Here is a quick overview of my situation. I rounded to make the calculations a bit easier:
My Student Loan Scenario
Expected Discount Amount
Current student loan balance owing
Amount paid during the pandemic
$6,000 (to bring my balance down to $20,000)
Although the steps are simple – request a refund, wait for your refund to increase your student loan balance, then request a forgiveness – they can easily happen out of order. And that could result in your current loan balance being canceled before you receive your refund.
For example, what if the government canceled my current student loan balance of $14,000 before my $6,000 refund reached my account? I would have a loan balance of $6,000 left, which could have been forgiven if my repayment had been processed sooner.
It’s best to avoid this scenario, but if it happens to you, there are steps you can take to receive your full forgiveness. The bad news is that it’s not yet clear how you will ask for additional forgiveness.
To reduce your risk of this kind of accident, you will need to understand the repayment and forgiveness timelines. Repayments should be processed in four to six weeks, said financial aid expert Mark Kantrowitz. My loan officer confirmed that it would take me up to six weeks to receive mine, as well as for the balance to be adjusted to my loan account. (As of this writing, I have yet to receive mine).
With that timing in mind, it’s best to request a refund in early October, but the sooner the better. That way, if processing takes six weeks, you should have your refund and adjusted student loan balance before the end of November. You should then apply for a rebate immediately, as processing can take up to six additional weeks, allowing your debt balance to be reset before payments restart in January.
But, if the timing doesn’t match and you end up with a partial discount before you receive your refund, we expect new guidelines to be available in the coming weeks. And, if the Department of Education doesn’t automatically adjust your rebate amount, you can always apply for debt relief again, according to Kantrowitz.
…and don’t wait for an automatic refund
According to Federal Student Aid website, you may receive a refund automatically if you made payments during the federal moratorium and these payments have reduced your loan balance to less than your forgiveness amount.
This means that if you’ve made payments during the pandemic that caused your student loan balance to drop below what you’re entitled to for forgiveness (say, $10,000), the federal government should hold it accountable. account when you apply for loan forgiveness.
In other words, you don’t have to ask for a refund to maximize your forgiveness — but you probably should, “just in case there are problems in the process,” Kantrowitz said.
And, if you’ve fully paid off your student loan balance during the pandemic, you won’t receive an automatic refund. You will have to apply for it yourself.
Requesting a refund is easy, but expect long wait times
To request a refund, you will need to call your loan officer on the phone, which can be frustrating if you’re a (guilty) millennial or Gen Zer who has a habit of asking for things quickly online. Wait times can be long and not everyone has the luxury of waiting for hours.
When I called my loan officer to request a refund, I couldn’t get through for about five days, spending several hours waiting to speak to a real person with irritating on-hold music taunting me in the background- plan. One Friday morning, I was finally connected to a rep within seven minutes. Once I was done, the rest was quick and painless.
The loan service representative confirmed the amount I had paid during the pandemic and asked me how much of my payments I would like to have repaid.
I opted for a partial refund. Although I made payments of $7,500 during the pandemic, I only requested $6,000 to settle my loan balance to exactly $20,000. If I had requested a full refund of $7,500, I would end up with a remaining balance of $1,500 to repay, again, after my pardon.
The agent confirmed that the $6,000 would return to my account, bringing my remaining student loan balance to $20,000. She also told me that my refund would be processed in four to six weeks and the money would be deposited directly into my bank account. But what she couldn’t confirm was how the timing of my $20,000 student loan forgiveness might be affected by my repayment.
In short, the sooner you request a refund, the better.
Keep your refund until your pardon is accepted
If you receive your refund before your student loan is canceled, Kantrowitz recommends saving it in case the administration’s debt relief plan runs into legal issues. When we might all be tempted to invest that money
, spend it on travel
Where it is wiser to keep it easily accessible.
Kantrowitz recommends placing your refund money in aWhere . It won’t earn much interest over a few months, but the money will be available in case there are delays in receiving your pardon.
Once your student loan relief has been provided, you are free to use your repayment as you see fit. Just make sure you know if you’ll owe state taxes on your forgiven debt, so you can set aside your repayment money come tax season.