Student loan borrowers who were refunded might have to pay all the money back

The U.S. Supreme Court blocked President Joe Biden’s widespread student loan forgiveness program Friday. Not only is that a setback for some 40 million borrowers looking forward to relief, it could also pose an issue for those who requested a refund on payments made during the COVID-19 payment pause and were under the impression they would have them forgiven.

When the president announced his widespread forgiveness plan last year, some borrowers were refunded payments they already made on their debt, so that they could receive the full amount of forgiveness the plan entitled them to—up to $10,000 or $20,000, depending on their status in school.

So if a borrower had $12,000 in federal student loan debt before the payment pause and paid off $2,000 during the pandemic, they could have received a $2,000 refund if they were were eligible for $10,000 in relief.

But that was before the forgiveness program was halted last fall. Now that it has officially been blocked by the court, advocates say borrowers should plan on repaying the refunds before interest starts accruing on their loans again in September.

“Borrowers who requested a refund should be prepared to try and send it back before interest restarts if they’ve saved it. If they haven’t, they should check their account in the next few weeks to see what their payment will be once repayments restart,” says Betsy Mayotte, president of The Institute of Student Loan Advisors. “If it’s unaffordable, they should explore the different repayment options and apply for the one that best fits their needs.” 

Of course, not all borrowers saved the refund and can easily repay it now—meaning they may be on the hook for more debt once interest starts accruing again.

Borrowers can review repayment plan options on the U.S. Department of Education’s website. It is also possible that a new, more generous repayment plan will be implemented soon, which could help many borrowers struggling to pay their bills.

That said, Biden has indicated he will have more announcements with regards to student loans, and the Education Department’s website says it is “reviewing the Court’s decision to determine next steps.” For now, borrowers’ smartest move may be to be patient and wait until they make any financial moves.

“Borrowers should continue awaiting communication from the Department of Education on how to pay that money back and how quickly it’ll be required,” says Sarah Foster, an analyst at personal finance website Bankrate.