Got a Student Loan Refund? Prepare to Pay it Back

If you got a student loan payment refund during the payment pause, the U.S. government probably wants it back. You’ll be on the hook for payments and interest on your entire student loan balance — including the refunded amount — now that bills are due.

But if you received forgiveness under the IDR account adjustment, the government might owe you money.

Here’s what you need to know.

Who got student loan refunds?

Only borrowers who requested refund checks got them. The refunds weren't automatic.

Payments made on federal student loans during the pandemic pause were eligible for a refund — but with broad cancellation off the table and payments restarting, the refunded amounts are being added back to borrowers' loan balances.

Refunds looked particularly attractive after the White House’s 2022 announcement that it would cancel up to $10,000 in federal student debt per borrower or $20,000 if they received a need-based Pell Grant. Some borrowers who took advantage of the zero-interest payment pause to pay down their loan balance more quickly preemptively sought a refund of payments that brought their balances below the cancellation thresholds.

For example, a borrower who had $12,000 in student debt in March 2020 made an $8,000 lump sum payment during the pause, leaving them with $4,000 in debt remaining. After hearing about the cancellation plan, they requested a $6,000 refund, which would bring their balance to $10,000 — the maximum amount of debt cancellation for which they would qualify.

Then, a federal student loan servicer mailed out a refund check.

But because the Supreme Court struck down President Joe Biden’s student debt cancellation in June, borrowers are liable for their full student debt balance, including any refunded amount.

Private student loan payments weren't included in forbearance, so they have been ineligible for payment refunds. Payments made on some FFEL Program or Perkins loans also weren't eligible.

» ICYMI: Forgiveness, forbearance and other recent student loan changes to know

Prepare to pay back your refund

If you got a student loan refund check during the payment pause, the refunded amount has been added back to your loan principal, increasing the amount you owe. Interest began building on that amount on Sept. 1.

Borrowers may be in for a shock, especially those who paid off their entire student loan balance during forbearance but requested a refund because they banked on Biden’s student debt cancellation plan.

Take these two key steps as soon as possible:

• Locate your student loan servicer. The company that manages your student loans may have changed since forbearance began, and you might not even know it. Find your current servicer and check your balance by logging into StudentAid.gov. 

• Contact your servicer. Log in to your servicer’s website or give them a call. Update your contact information. Ask how much your payments are, which day your first payment is  due in October and which student loan repayment plans are available. If you had automatic payments before forbearance, you’ll need to set those up again. 

» MORE: Federal student loan servicers: Who they are and what they do

Once you’ve confirmed how much you owe and touched base with your servicer, here are some repayment strategies to consider.

Make lump sum payments

If you set aside some or all of the money that was refunded, consider using it to make a lump sum payment on your student loan balance. This strategy can help you reduce the amount of interest you’ll owe over time, lowering the overall amount you’ll pay.

Only make a lump sum payment if doing so doesn't derail other pressing financial goals like building an emergency fund, saving for retirement, paying your mortgage or covering other bills.

Income-driven repayment plans can shrink payments

If you can’t afford a lump-sum payment, consider signing up for an income-driven repayment (IDR) plan. These plans cap your monthly bills at a set portion of your disposable income and forgive remaining debt after a certain number of years. Depending on your income, your bills could be as low as $0 per month. And under the new IDR plan called SAVE, if you make monthly payments, interest won't build up on your student loan balance.

Contact your servicer to sign up for an IDR plan. To estimate your payments under new and existing IDR plans, use NerdWallet’s discretionary income calculator for student loans.

» LEARN: Is an IDR plan right for you?

No impact on forgiveness under IDR, PSLF

If you got a refund check, your progress toward IDR forgiveness — which occurs after 20 to 25 years of monthly payments under existing IDR plans — won’t be impacted.

That’s because a one-time program called the IDR account adjustment reconsiders which months count toward IDR forgiveness. The recount includes all months that occurred during the pandemic payment pause, regardless of whether you made payments.

Borrowers who’ve been in any repayment plan for at least 20 to 25 years will see their remaining student loan balance erased entirely under the IDR account adjustment, while borrowers with newer loans will move closer to the IDR forgiveness finish line. Borrowers who reach forgiveness under the account adjustment will get an email notification by the end of 2023; all other borrowers will be notified in 2024.

So if you requested a refund, but you’ve been in repayment for at least 20 to 25 years, you may be free from your student debt — including the refunded amount. Make your student loan payments until you’re notified that you’re in the clear.

The same goes if you’re working toward Public Service Loan Forgiveness (PSLF), which requires 10 years (120 months) of payments before your remaining student loan balance is forgiven. You’ll still get PSLF credit for all refunded payments, so long as you meet other qualifications, like working a PSLF-eligible job when you originally made the payment.

How to get a refund if the IDR account adjustment forgives your debt

If you’re a longtime borrower and you get your loan balance forgiven under the IDR account adjustment, it’s possible that you actually overpaid.

» MORE: What happens next if your student loans are forgiven?

In most cases, you’ll get a refund for any overpayments beyond 20 or 25 years. The extra payments made on forgiven loans will be refunded back to the most recent of these three dates:

• The date you reached the required number of payments for IDR forgiveness – 20 or 25 years of monthly bills. 

• The date when the Department of Education acquired your loan.

• The disbursement date of your consolidation loan.

If you consolidated your loans in the past, you won’t get any refunds for payments made before the consolidation. However, you can still get credit towards IDR forgiveness for any payments made before you consolidated.

Refunds will be delivered in the same way you originally made the payments. If you paid by paper check, you’ll get a refund check; if you paid online with a bank account, the refund will land back in that bank account.