Millions of student borrowers will soon receive automatic repayments on loan repayments made during the Covid-19 pandemic, the US Department of Education shared on their website earlier this week.
The news comes less than a month after President Joe Biden’s historic student loan forgiveness announcement: The administration is canceling up to $10,000 in federal student loans for those earning less than $125,000 a year for individuals or $250,000 for married couples or heads of households and up to $20,000 for Pell Grant recipients who meet the income threshold. Private loan holders are not included in the plan.
In August, Biden also extended the pause on repayment, interest and collections, which began in March 2020, “one last time” until December 31.
According to the Office of Federal Student Aid, approximately 9.1 million federal borrowers made at least one payment between April 2020 and March 2022. Payments made since March 2020 on pause-eligible federal student loans should now be repayable , higher education expert Mark Kantrowitz told CNBC. However, commercially held Federal Family Education Loans (FFELs), which were not eligible for the pause, will not be eligible for repayment.
According to the ministry’s website, those eligible for debt cancellation will automatically receive a refund if:
- “You have successfully applied for and received debt relief under the administration’s debt relief plan, AND”
- “Your voluntary payments during the payment break brought your balance below the maximum amount of debt relief you are eligible for, but did not fully repay your loan.”
For example: if you are a borrower eligible for $10,000 relief, had a balance of $10,500 before March 13, 2020, and paid $1,000 for your loans during the break, bringing your balance at $9,500, the department will pay your balance of $9,500, and you will receive a refund of $500.
“Anyone who has interacted with the student loan system in this country knows that automatic relief programs are the only relief programs that work,” Mike Pierce, executive director and co-founder of the Student Borrower Protection Center, said in a statement. written.
A spokesperson for the Education Department declined to provide further details on the plan, including how repayments will be distributed, except to tell CNBC Make It that more information on the loan forgiveness program would be shared “in the coming weeks”.
The nearly 1.9 million borrowers who repaid their loans during the pause and those who refinanced their student loans during the pause with private loans, such as those offered by SoFi or CommonBond, are not eligible for automatic relief. but can contact their loan officer until Dec. 31, 2023 and request a refund, according to the department’s website.
The loan forgiveness application will be available in early October, a department spokesperson told CNBC Make It, and applicants should see relief 4 to 6 weeks after submitting their documents.
Borrowers are advised to apply by Nov. 15 in order to receive relief before the payment pause expires on Dec. 31, the spokesperson added, but borrowers who do not apply by the December 31 will still be eligible for relief.
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