How to Get a Refund on Student Loan Payments – Forbes Advisor

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For many student loan borrowers, this year has been a period of ups and downs. Even if you could afford to continue your recurring payments after the federal Covid-19 student loan refraining The period began in March last year, perhaps your financial situation has changed since then, and this money will be returned to you.

If you are now short on money, you can request a refund for all payments made during this period. Here’s how to do it.

How to get a refund

When CARES Law passed in March 2020.He immediately suspended payments on student loans to federal borrowers. Since then, the administrative abstinence period has been extended twice and is now due to end on September 30, 2021.

Borrowers have the option to continue making payments during the administrative grace period. Many have taken advantage of the 0% interest rate set by the government for their loans, which means that 100% of the payments they now make go towards repaying the principal of each loan.

However, borrowers who now need money can request a refund of any federal student loan payments made on or after March 13, 2020. If you made additional payments before that day, you will not be able to receive a refund.

The process is pretty straightforward. First, write down how many payments you made during the abstinence period, the date the payment was made, and the amount of each payment. You may have sent payments to several different service loans if you have more than one loan. Here is a complete list of all servicing federal loans

Next, visit the Credit Support website and click on its Covid-19 page, which should provide information on how to request a refund. Most service centers will require you to call them in person to request a refund.

When you have done so, indicate which months you would like to receive your refund for. Ask them how long it will take to process the return. It must be sent to the bank account from which you made the payment.

Then set a reminder on your calendar or phone to make sure the refund has been made. In some cases, it can take up to a month to process your return, so don’t worry if it’s been several weeks. Do not hesitate to contact the credit service if your refund has not appeared after that.

What to do with a refund

Once a refund has been credited to your bank account, it is important to consider a strategy for using it. Here are some options:

Replenish your reserve fund

As the Covid-19 pandemic has shown, millions of Americans are missing emergency fund to cover basic expenses in case of job loss.

If you’ve saved less than six months on expenses, add reimbursement to your rainy day fund. This money should only be used for surprises such as a sudden ambulance trip or the travel expenses of a funeral.

A smart idea is to keep the reserve fund in high yield savings accountwhich brings in more interest than a traditional savings account.

Payment of overdue invoices

If you missed some bills while you were unemployed, use refunds to catch up. Call service providers and ask them to reduce or eliminate any late fees or other additional fees.

While you’re on the phone, ask them if you have a discount plan. Many energy companies and Internet service providers offer more affordable options for low-income consumers. You may have to provide a pay slip or proof of unemployment to be eligible, but you can save hundreds by registering.

Eliminate high interest rate debt

If you already have a fully stocked contingency fund, the next best option is to use a refund to disburse high interest debt such as credit cards, payday loans and secured loans. Generally, if the interest rate is in double digits, you should pay it off quickly.

If you have multiple loans or high interest rate credit cards, write down your total balance, interest rate, and monthly payment. Sort loans or credit cards by balance and total interest rate.

There are two highly effective strategies you can use to get your money back: snowball debt method and avalanche debt method

The debt snowball method is to pay off the smallest balance first. Once you have paid the smallest balance, you can add that monthly payment to the next smallest balance. Using the avalanche method, you prioritize the loans with the highest interest rate first.

Research published in 2016 in the Harvard Business Review found that borrowers who use the snowball method pay off their debt faster than those who use the avalanche debt method. The idea is that paying off individual debts faster helps borrowers stay motivated to keep working.

If motivation is not an issue, then the debt method may be preferable because you will save more on interest. Choose the method you like and get your loan back.

Pay for necessary repairs

If you have postponed an oil change or plumbing repair because of your financial situation, use the reimbursement to cover these costs. The longer you wait to take care of your car or home, the more expensive the renovation will be.

Pay for healthcare

If you delay seeing a doctor during a pandemic and you still have a problem, reimburse that amount to cover your medical expenses. You can even get a tax credit if you invest in your health savings account (HSA) first.

Only consumers with a high deductible health plan (HDHP) can open an HSA, so double check what coverage you have before opening one.

HSA contributions are tax-free and can be used for doctor visits, labs, imaging, surgery, prescriptions, and more. CARES has expanded HSA eligibility so you can now buy menstrual products and over-the-counter drugs with your HSA card.

Buy life insurance policy

Buying life insurance during the pandemic, it has become a more pressing issue for many, but consumers can avoid it due to the high cost.

According to Policygenius, the average cost over a 20-year period is $ 500,000. term life insurance the policy is about $ 29 a month for a 35-year-old man and $ 24 a month for a 35-year-old woman. If you receive a refund of $ 300, you will be able to pay the annual premiums.

Options for private borrowers

While the government only offers refunds on federal student loans, borrowers with private loans still have other options to cut their payments.

To get started, contact the lender and ask if he offers patience program. Many private lenders are more flexible with borrowers due to the pandemic by providing extended abstinence programs two whole years. You may need to apply for the program about once a month and provide proof of economic hardship, such as unemployment benefits. Again, this depends on your specific lending institution.

Keep in mind that interest will continue to accrue during this time and will likely be added to the total principal when the abstinence period ends. This will likely increase your monthly payments and your total interest. Once you can afford to make recurring payments again, start doing so to avoid increasing interest on your loan balance.

If you qualify based on your credit score and income, you can also choose refinancing your private student loan for a longer term. This will reduce your monthly payments and free up some cash flow. Usually, however, you are not eligible for abstinence until you have made a certain number of timely payments, so be aware that you may not be able to withdraw from loans immediately after refinancing.

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