Many borrowers to receive automatic refunds for student loan payments during pandemic debt pause

Many borrowers who made student loan payments after March 2020, when a pandemic debt moratorium began, can expect to receive refunds "automatically" under President Biden's nearly $380 billion student debt forgiveness program.

According to updated guidelines for borrowers released by the Department of Education:

"You will automatically receive a refund of your payments during the payment pause if:

• you successfully apply for and receive debt relief under the Administration's debt relief plan, AND
• your voluntary payments during the payment pause brought your balance below the maximum debt relief amount you're eligible to receive but did not pay off your loan in full."

The agency provided an example for borrowers who are applying for debt relief.

"If you're a borrower eligible for $10,000 in relief; had a balance of $10,500 prior to March 13, 2020; and made $1,000 in payments since then — bringing your balance to $9,500 at the time of discharge  — we'll discharge your $9,500 balance, and you'll receive a $500 refund," the agency explained.

The original version of the guidance for Biden's student debt forgiveness plan encouraged borrowers who made payments during the pandemic payment pause to contact their loan servicer for refunds. Under the current guidelines, qualified borrowers will receive automatic refunds.

The Education Department has also reported that Biden's student loan forgiveness program, which provides up to $20,000 for qualified borrowers, will cost about $379 billion, but there are caveats. 

"These estimates are based on highly uncertain assumptions about future economic conditions and participation rates," reads the agency's analysis.

The Committee for a Responsible Federal Budget puts the cost higher, at $420 billion. The budget watchdog group estimated that most of the benefits from President Biden's student loan forgiveness program will be wealthy Americans.

"We find that 57 percent to 65 percent of the extended pause and cancellation will go to those in the top half of the income spectrum," read the CRFB's analysis.