Millions of student loan borrowers will automatically get a refund for payments made during the pandemic

Borrowers will get a refund automatically if they qualify for the Biden administration’s $10,000 to $20,000 relief plan and made enough payments throughout the pandemic that their balance is now below the maximum amount of relief for which they are eligible.

That will help ensure borrowers are actually receiving the full benefits of the president’s debt forgiveness plan.

“Automatically providing these refunds will ensure that borrowers are made whole if they made payments during the payment pause without having to rely on the whims of abusive and ineffective servicers to access this relief,” Mike Pierce, executive director of the Student Borrower Protection Center (SBPC), a nonprofit advocacy organization, said in a statement.

One wrinkle: Borrowers who paid off their balance in full during the pandemic or consolidated with a private lender will not receive a refund automatically, though they can call and ask their servicer for one. That applies to an estimated 1.9 million people, according to SBPC.

Let’s say you had $12,000 in federal student loan debt before the payment pause and paid off $4,000 during the past two and a half years. If you are eligible for $10,000 in relief, you will get a refund of $2,000 when you apply for forgiveness.

Now let’s say you had $12,000 in federal student loan debt before the payment pause, but paid it off completely. If are eligible for $10,000 in forgiveness—meaning you meet the income requirement—you can call your servicer now for a refund and have that balance completely erased when applications become available.

Applications for the widespread forgiveness will be available in early October.

Biden announced widespread student loan relief last month. All federal student loan borrowers with adjusted gross income under $125,000 in 2020 or 2021 are eligible ($250,000 for married couples filing jointly), as long as they apply when the time comes. Those who received even a single Pell Grant during their time in school are eligible for up to $20,000 in forgiveness; everyone else is eligible for $10,000.

Undergraduate, graduate, and Parent PLUS loan borrowers and students currently in school qualify, assuming they meet the income requirements.

Other borrowers who have made payments but still have a higher balance than what will be forgiven can still get a refund for payments made after Mar. 13, 2020, by calling their loan servicer. But that will potentially increase their balance and their monthly payments.

SPBC is encouraging borrowers to “proactively” request refunds now so that they can receive their money sooner—especially those who paid debts off completely or refinanced with a private lender.

Still, for all of those who aren’t aware that refunds are available, the Department of Education’s announcement will be meaningful.

“We’re glad to see that the Department understands the importance of automation and maximizing relief to borrowers,” Pierce said. “We urge them to deliver the rest of Biden’s promised debt cancellation by making it all automatic.”