A change initiated by the Biden administration earlier this summer allows for student loan borrowers to receive refunds if they paid more than they owe. One nurse from New Jersey is about to see a big payday.
On July 14, the Department of Education (DOE) began notifying 804,000 borrowers with a total of $39 billion in federal student loans that their balances would be automatically discharged if they consistently made monthly payments under income-driven repayment (IDR) plans.
The decision “addressed historical failures” in federal loan programs, allowing borrowers to be eligible for forgiveness if they have accumulated the equivalent of either 20 or 25 years of qualifying months.
Following a pause on student loan payments stemming from the COVID-19 pandemic, interest on loans began to accrue again this month, and payments will resume for over 40 million borrowers in October. The Biden administration has attempted workarounds on loan forgiveness after the U.S. Supreme Court struck down a plan to erase debt for about 37 million Americans, arguing that the president did not have the authority to automatically forgive without Congress’ approval.
U.S. President Joe Biden (R) speaks about student loan forgiveness at the White House, on June 30, 2023, with Education Secretary Miguel Cardona. Borrowers who made more payments than required are being refunded by the federal government. Chip Somodevilla/Getty Images
Lisa Frisby told USA Today that she was financially on her own when she started college in 1993 and borrowed money to pay for housing, tuition and books. She also got a job so she would have health insurance.
But after a mix-up involving her student loan payments in which a decade’s worth of her payments seemingly disappeared without record, she was still paying down debts 25 years post-graduation.
She ended up paying about $70,000 worth of payments on a $40,000 loan. But now she is done for good on payments and will receive a refund from the federal government.
StudentAid.gov, which offers assistance to borrowers on federal financial aid for college, states that those who pay more months than required as part of their loan repayment automatically qualify for forgiveness.
Those additional payments made on forgiven loans are refunded on one of three dates, whichever is most recent:
The date a borrower reaches the required number of payments
The date when the DOE acquired a loan
The disbursement date in cases of consolidated loans
Individuals who pay more than required will be notified by their loan service provider when loans are forgiven, with any refunds due in the same manner as borrowers made their monthly payments—such as electronic payment or check.
In most instances, refunds will be processed in two months or less.
Newsweek reached out to DOE via email for comment.
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