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Some student loan borrowers will receive automatic refunds for payments made during pause

Borrowers who made voluntary payments that brought their balance below the maximum debt relief they're eligible for will be refunded the difference.

WASHINGTON — Some student loan borrowers will be automatically refunded for payments made during the federal payment pause during the pandemic, according to new guidance from the Department of Education.

Borrowers who continued to make payments during the federal payment pause and brought their balance below the maximum relief they are eligible to receive, but did not pay off the total balance, will receive a refund for the difference when they apply for debt relief.

The Department of Education added the new information to an updated FAQ page on President Biden's student debt relief program, which will forgive $10,000 to $20,000 of student loan debt.

The department explains in the FAQ: "For example, if you're a borrower eligible for $10,000 in relief; had a balance of $10,500 prior to March 13, 2020; and made $1,000 in payments since then—bringing your balance to $9,500 at the time of discharge—we'll discharge your $9,500 balance, and you'll receive a $500 refund."

RELATED: You won’t have to pay federal taxes on student debt relief, but states could tax it as income

Who is eligible?

To qualify for student loan debt relief, your annual federal income needs to have been below $125,000 (individual or married, filing separately) or $250,000 (married, filing jointly or head of household) in 2021 or 2020.

Borrowers who did not receive a Pell Grant qualify for $10,000 of student loan forgiveness. People who received a Pell Grant are eligible for $20,000 of loan forgiveness.

Approximately 9.1 million borrowers made at least one payment between April 2020 and March 2022, according to a government report. Borrowers must qualify for, apply for and receive student debt relief to receive an automatic refund of voluntary payments made during the pandemic payment pause.

People who consolidated their loans after March 13, 2020, will not qualify for any refunds for payments made prior to the consolidation.

RELATED: No, the president cannot permanently change student loan interest rates

Should you request a refund?

When President Biden first announced his student debt relief package, the White House initially said anyone who made voluntary payments after the pause was put into place on March 13, 2020, could request a refund from their loan servicer. 

Borrowers can still do that, but the Department of Education cautions against it for those who will still have a balance remaining after their debt relief is applied. Loan balances will be re-amortized, meaning the monthly payment will be recalculated based on the new balance.

"It's important to note that these refunded payments will increase your loan balance and your monthly payments," the website states.

RELATED: When do applications open for student loan forgiveness?

How should you prepare?

Most borrowers will have to apply for debt relief. Log in to your account on StudentAid.gov and make sure your contact information is updated. You can also sign up to receive text alerts.

Make sure your information is up to date with your loan servicer. If you don't know who your loan servicer is, you can see it on the dashboard of your StudentAid.gov account.

The online application is expected to launch in early October. You'll have until Dec. 31, 2023 to submit an application.

RELATED: 5 ways to spot a student loan forgiveness scam


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