After the Biden administration unveiled its plan to forgive $10,000 of federal student loan debt, and an additional $10,000 for Pell Grant recipients, for borrowers earning less than $125,000, the U.S. Department of Education announced that student borrowers can being applying for debt relief as early as October. However, eligible borrowers who made payments during the COVID-19 student loan moratorium can receive automatic refunds for their student loan payments.
On Aug. 24, President Joe Biden announced his administration’s plan for federal loan borrowers who make less than $125,000 to have $10,000 of their student loan debt wiped clean. Pell grant recipients — student borrowers from low-income households — will receive a total of $20,000 deducted from their federal student loan debt, according to the federal government. Anyone with undergraduate loans will now be able to cap their monthly loan repayment at 5% of their monthly income.
The administration also extended the pause on federal student loan payments to Dec. 31.
According to the Office of Federal Student Aid, eligible borrowers who meet certain criteria and made voluntary student loan payments during the loan moratorium, might not have to request a refund of their payments from their lender because they could automatically qualify.
Here’s who qualifies for automatic student loan payment refunds:
First, a person must successfully apply for student loan forgiveness when applications open in October and then receive debt relief under Biden’s plan, according to the Department of Education.
- Read More: Student borrowers can apply for federal debt relief starting in October, officials announce
Second, student loan payments a person’s made since March 13, 2020 — when the Trump administration initiated a pause on student loan payments — must have brought their loan balance below the maximum debt relief they’re qualified to get. However, the loan balance must have not been fully paid off, federal officials stated.
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 — the department of education will wipe away your $9,500 balance, and you’ll receive a $500 refund.
If an individual does not meet these requirements, they can still get a refund on payments they made since March 2020. However, the refunds will increase their loan and monthly payments.
Eligible borrowers have until Dec. 31, 2023 to request a refund.
A total of 813,000 student loan borrowers in Massachusetts would be eligible for debt cancellation under the Biden administration’s plan, more than 10% of the state population. About 400,000 of them are Pell Grant recipients, according to the White House.
- Read More: Student loan relief: How many Massachusetts borrowers are eligible for debt cancellation?
The Biden administration also said that half of the 40 million people eligible for some debt relief could see the entire remaining balance of their student loans canceled.
Department of Education officials said that it has income data on hand for about 8 million borrowers who will receive their debt relief automatically and it plans on alerting borrowers who automatically qualify based on income data for tax years 2021 or 2020 submitted to past federal aid applications. The department said most borrowers will need to apply, with online applications opening by early October.
A paper version of the form will be made available at a future date, and applicants will have until Dec. 31, 2023, to apply both online or with a physical form, according to the department of education.
No exact dates of when borrowers will receive their debt relief have been announced.
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