Can Student Loan Payments Be Refunded? How to Find Out
Navigate the complexities of student loan payment refunds. Learn how to determine if you're due money back and what to do next.
Student loan payments can be refunded, offering relief to borrowers under specific conditions. Eligibility and the process depend on the type of loan and when payments were made. Understanding these distinctions is important for anyone exploring whether they might qualify for money back.
Types of Student Loan Refunds and Eligibility
Payments made on federal student loans during the pandemic payment pause (March 2020 through December 31, 2022) were eligible for refunds. Borrowers with qualifying Direct Federal Student Loans who continued to make payments during this period could request these amounts back. The deadline to request these refunds was August 28, 2023.
Borrowers may also receive refunds for overpayments resulting from adjustments to their accounts under income-driven repayment (IDR) plans or Public Service Loan Forgiveness (PSLF). If an account adjustment determines that more payments were made than necessary for loan forgiveness, the office of Federal Student Aid will contact the borrower. These refunds are issued automatically.
Refunds can also occur if a federal student loan is discharged due to circumstances such as the borrower’s death, total and permanent disability, or if the school closed before the student completed their program. Refunds may also be issued if the loan was falsely certified by the school, or if the student withdrew but the school failed to refund required loan money.
Individuals who lost money as a result of student loan forgiveness scams may also be eligible for refunds. Regulatory bodies like the Federal Trade Commission (FTC) have taken action against fraudulent operators and facilitated refunds for those financially harmed. These refunds are not required to be repaid by the borrower.
Payments made on private student loans are not eligible for these federal refund programs.
The Process for Requesting a Refund
To initiate a refund request for eligible federal student loan payments, borrowers should contact their loan servicer. The loan servicer manages billing and other services for federal student loans. Their website provides information regarding student loan refunds, and they can help determine if payments qualify.
When contacting the loan servicer, borrowers should provide details about payments made during the pandemic pause, including dates and amounts, and specify the desired refund amount. The servicer will then process the request through the Department of Education. This process can take six to twelve weeks, or 90 to 120 days.
Refunds are delivered in the same manner as the original payments. For example, if payments were made electronically, the refund will be sent back to that account. If payments were made by paper check, a refund check will be issued.
Repaying Refunds and Tax Considerations
Some borrowers who received refunds for payments made during the pandemic pause are now being asked to repay those amounts. This applies to individuals who obtained a refund in anticipation of broad debt forgiveness that did not occur. If the loan was not forgiven, the refunded balance has been added back to the borrower’s account, along with any accrued interest since the payment pause ended in September 2023.
A student loan refund is not considered taxable income by the Internal Revenue Service. This is because the refund represents a return of money already paid by the borrower, not new income or forgiven debt. The American Rescue Plan Act of 2021 made federal student loan forgiveness tax-free at the federal level until December 31, 2025.
However, tax implications can become more complex if a refund is associated with a loan that was later forgiven. While federal tax laws may provide specific exclusions, state tax laws can vary regarding the treatment of forgiven debt. Consult a qualified tax professional for personalized advice on any specific student loan refund scenario.