If you’re a federal student loan borrower in a cash crunch, consider asking for a refund if you made extra payments after March 13, 2020, when the CARES Act student loan payment moratorium was put in place. The only trade-off is that you’ll set yourself back on paying off your loan, but that might be worth it if your circumstances have changed and you want to top up your emergency fund or pay off higher-interest debt first.
It’s your money until the moratorium expires
As part of the CARES Act passed in March 2020, interest on student loan payments was frozen and payments were suspended for federal borrowers. This forbearance has been extended twice and currently expires on Sept. 30, 2021 (there hasn’t been much talk about another extension, so this might finally be the true end date for the moratorium).
But what if you made extra payments anyway? Well, according to the Federal Student Aid website, “any payment you made during the suspension of payments (beginning March 13, 2020) can be refunded. Contact your loan servicer to request that your payment be refunded.”
(Loans that qualify for this refund have to be Department of Education loans, however, which means that Federal Perkins loans and the Federal Family Education loans don’t count, as those programs aren’t run by the government).
How to claim a refund
Per Forbes, you’ll want to compile a record of all the payments you’ve made during the forbearance period, itemized by the lender, the amount paid, and the date the payments were processed.
Next, visit the loan servicer’s website and look for a COVID page or banner, which should provide more details about how to claim your refund. After making the request, ask them how long it will take and create a calendar reminder to check your bank account after the date provided. Just remember that when the moratorium period is lifted, you’ll still owe the outstanding balance on your loan, and interest will once again accrue.
When is asking for a refund be a good idea?
Of course, there’s nothing wrong with paying down the outstanding balance on your loan by making extra payments during the moratorium. But the point is that you don’t have to, either. And if you’ve suddenly found yourself desperate for cash, dipping back into your student loan payments is a better option than relying on a credit card or a personal loan, which might incur interest at a rate 10%-20% higher than the 0% currently being charged on your student loans.
As Tricia Tetreault, a senior financial analyst at FitSmallBusiness, explains to Student Loan Planner:
Those that find themselves in need of funds often turn to loans and credit cards to supplement their cash flow. While these financial resources are helpful, they do come at a cost. If the amount of your eligible student loan refund will allow you to avoid taking on additional debt you may want to consider requesting the refund.
A refund can still be a good option even if you’re not desperate for cash. As we’ve pointed out in previous Lifehacker posts, you might want to hold off on paying student loans until there’s more clarity around debt forgiveness (or at least until talk of $50,000 forgiveness for all borrowers is resolved) and use that cash elsewhere—to beef up an emergency fund or even grow your retirement savings, as the long-term gains might surpass the benefits of a making a few payments on a low-interest student loan.