Do I cancel the student loan refund application? What the experts say

Thanks to a COVID-19 relief bill, borrowers who made payments on their federal student loans during the public health emergency can request a refund if needed. And when Biden announced his plan to forgive up to $10,000 to $20,000 per borrower, many who had already paid their balance below that limit demanded reimbursement.

Now, with the fate of the program in the air due to multiple legal challenges, these borrowers must be wondering whether they should spend the refund, pay it off on their debt now, or just keep it to see what happens. Some are still waiting to receive the refunds they requested when the forgiveness plan was first announced, adding to the confusion.

“On the one hand, nobody knows for sure where these current legal challenges will lead, and I don’t think anyone should spend a lot of time panicking about something they can’t control,” says Jacob Channel, Senior Economist at LendingTree. “On the other hand, it looks like the plan faces an uphill battle given how conservative many of the country’s courts – particularly the Supreme Court – are.”

That being said, Channel says if you got a refund for student loan payments made during the pandemic because you thought the debt would be forgiven under Biden’s plan, then hold it for now. Put it in a savings account — better yet, a high-yield account — until the future of debt relief is clearer.

“Because federally-backed student loans won’t collect interest until repayments resume in January…don’t do that.” [need] that you now have to worry about spending money on your loans,” he says. “Try not to spend the money you get refunded, at least until we know for sure where the forgiveness is.”

If Biden’s forgiveness plan is ultimately blocked, you can put the refunded money directly back into your student loans.

So far, the widespread forgiveness plan has been blocked by two courts. It’s likely that at least one of the cases will make it to the Supreme Court — which means it could be weeks or months before borrowers learn the fate of debt relief.

With federal loan payments expected to resume in January 2023, some borrowers are pushing for that date to be pushed back again, at least until a final ruling is reached.

“At the end of the day, I would say people should hope for the best and prepare for the worst,” says Channel. “Last but not least, that means saving what they can and planning for payments to resume in January.

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