Finances

Those who have paid off student loans could get refund under federal forgiveness plan

Borrowers who will still owe can also anticipate a new repayment plan to reduce the total costs and payments. 

Student Loans Cost of College
(AP Photo/Jacquelyn Martin, File)
FILE – With the Founders Library in the background, a young man reads on Howard University campus July 6, 2021, in Washington. For millions of Americans, President Joe Biden's student loan cancellation offers a life-changing chance to escape the burden of debt. But for future generations of students, it doesn’t fix the underlying reason for the crisis: the rising cost of college.

Student loan debt in the United States totals $1.748 trillion and 43 million borrowers have federal student loan debt, according to the Education Data Initiative.

President Joe Biden’s loan forgiveness plan, announced last week, would erase up $10,000 for borrowers earning less than $125,000 a year, or couples earning less than $250,000. Pell grant recipients could see up to $20,000 in debt forgiven.

"I think there's no denying this is life-changing for millions of student loan borrowers," said Daniel Zibel, vice president and co-founder of Student Defense, a students' rights advocacy group. "Up to 27 million borrowers will be eligible to receive up to $20,000 in relief. There is no question this will be a monumental for millions of people."

However, many who have paid off their student loans in recent years are asking if they qualify for a refund.

"Those who have been making voluntary student loan payments of their federal student loans since March of 2020, you can actually get a refund of those payments you will have that amount canceled out," Zibel explained.

Borrowers who will still owe can also anticipate a new repayment plan to reduce the total costs and payments.

“I think we’re going to be seeing a lot of steps that can taken to make higher education more affordable,” Zibel said.

Those in college can also receive help. According to the Education Data Initiative, the average public university student borrows $32,880 to attain a bachelor's degree and 48.5% of federal borrowers are between the ages of 25 to 34 with an average debt of $33,430.

"The administration's loan forgiveness announcement applies to any loan that was originated by the government prior to, or on June 30, 2022," Zibel said. "So, depending on timing if a student who just started school for the first time is potentially eligible for forgiveness, and students who were in school last year, and certainly if the loan was originated in 2021, that's eligible for forgiveness."

Meanwhile, any existing student loan forgiveness programs in place will continue and a pause in student loan payments is being extended a final time to the end of this year. Starting in 2023, people with student loan debt will need to pay it again. Zibel says the pause and forgiveness is helpful for the economy.

"Education is a public good, we benefit as a society from a well-educated and well-versed population," Zibel said. "This is money that people are going to be able to spend in the economy and address these issues of generational wealth for people who had to take on debt that haven't been able save or haven't been able to save for retirement, haven't been able to buy a house or haven't been able to buy a car, hopefully will able to do those things now."

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