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What If You Just Paid Off Your Federal Student Loans? Or Paid Them Down?

What If You Just Paid Off Your Federal Student Loans? Or Paid Them Down?

President Joe Biden announced Wednesday that he’s canceling up to $20,000 in debt for current or former students who received Pell Grants to attend college or up to $10,000 for people of certain income levels with other federal student loans.

It’s a life-changing announcement. Nearly 90% of the planned debt cancellation for those no longer in school will go to borrowers earning less than $75,000, the Biden administration said, noting that the cost of four-year college has nearly tripled since 1980, even accounting for inflation.

But what does the announcement mean if you recently paid off your federal student loans? Or what if you paid them down? Are you still eligible for some kind of student loan forgiveness under Biden’s plan?

There’s good news and bad news.

If you made payments after March 13, 2020, you may be eligible for a refund

The bad news: If you paid off your federal student loans before March 2020, you are not expected to be eligible for this federal student debt relief. More specifics about how Biden’s loan forgiveness plan will work are expected to be released soon, but the plan applies only to current student debt holders.

“I have seen nothing to indicate that if you paid off your loans, that you’d be eligible for forgiveness,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a nonprofit trade association.

There is, however, a possibility for a refund for student loan payments made after March 2020. The COVID-era policy in place allows borrowers this opportunity, per the Department of Education.

“You can get a refund for any payment (including auto-debit payments) you make during the payment pause (beginning March 13, 2020). Contact your loan servicer to request that your payment be refunded,” the Federal Student Aid (FSA) office’s website states.

To demonstrate how those refunds work, Buchanan outlined an example of a borrower who made a lump sum payment of $1,000 in June 2021, bringing their balance down to $8,000, and now wants a refund for that payment. The loan servicer should say, “Great. Your balance as of right now is $8,000. We’re going to send you a check for $1,000 and then your loan balance will increase to $9,000,” Buchanan said.

But what we do not know yet is how Biden’s student debt relief plan will impact those payments made during COVID. Buchanan said the date that the government chooses to look at loan balances for the forgiveness plan could potentially impact…

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