How to get your student loan payments back – Forbes Advisor

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It has been an eventful year for many student borrowers. Even if you could afford to continue making regular payments after the Covid-19 Student Loan Forbearance period started last March, maybe your financial situation has since changed and you would benefit from a refund of that money.

If you now find yourself strapped for cash, you can request a refund on all payments made during that time. Here’s how to do it.

How to get a refund

When the CARES law passed in March 2020he immediately suspended student loan payments for federal borrowers. Since then, the administrative abstention period has been extended twice and is now expected to end on September 30, 2021.

Borrowers have the option of continuing to make payments during the administrative forbearance period. Many have taken advantage of the 0% interest rate the government has set their loans at, which means 100% of the payments they now make go to pay off the principal balance of each loan.

However, borrowers who are now in need of cash can request reimbursement of any federal amount. student loan payments made after March 13, 2020. If you made additional payments before that date, you will not be able to get a refund.

The process is quite straightforward. First, write down the number of payments you made during the withholding period, the date the payment was made, and the amount of each payment. You may have sent payments to several loan officers if you have more than one loan. Here is a complete list of all federal loan officers.

Next, visit the loan service’s website and click on its Covid-19 page, which should contain information on how to request a refund. Most repairers will require you to call them to personally request a refund.

When you do, specify for which months you want to be reimbursed. Ask them how long it will take for the refund to be processed. It should be credited 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. Refunds can take up to a month to process in some cases, so don’t worry if it’s been a few weeks. Do not hesitate to contact the loan officer if your repayment still has not come up after this.

What to do with a refund

Once your refund has been posted to your bank account, it’s important to be strategic about how you use it. Here are some options:

Add to your emergency fund

As the Covid-19 pandemic demonstrated, millions of Americans do not have enough emergency fund to cover essential expenses if they lose their jobs.

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

It is a good idea to keep an emergency fund in a high yield savings account, which earns more interest than a traditional savings account.

Pay overdue bills

If you dropped some bills while you were unemployed, use reimbursement to catch up. Call suppliers and ask them to reduce or eliminate late fees or other additional charges.

While you’re on the phone, ask them if there’s a discount plan you can be put on. Many energy companies and Internet service providers offer more affordable options for low-income customers. You may need to provide a pay stub or proof of unemployment to qualify, but you could save hundreds of dollars by signing up.

Eliminate high interest debt

If you already have a fully funded emergency fund, the next best option is to use your refund to pay off high interest debt like credit cards, payday loans and title loans. In general, if the interest rate is in the double digits, you should pay it off quickly.

If you have more than one high interest loan or credit card, write down the total balance, interest rate, and monthly payment. Sort loans or credit cards based on the remaining balance and the overall interest rate.

There are two very effective strategies you can use to apply for the refund: Debt Snowball Method and Debt Avalanche Method.

The debt snowball method is to pay off the lowest balance first. Once you’ve paid off the smaller balance, you can add that monthly payment to the next smaller balance. With the avalanche method, you prioritize loans with the highest interest rate first.

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

If motivation is not an issue, the debt avalanche method may be preferable because you will save more on interest. Choose the method that works for you and direct your repayment to this loan.

Pay for necessary repairs

If you have delayed an oil change or plumbing repair due to your financial situation, use the rebate to cover these expenses. The longer you wait to take care of your car or home, the more expensive the repairs will be.

Pay for health care

If you delay your doctor visit during the pandemic and you have a persistent problem, apply the reimbursement to your healthcare expenses. You can even get tax relief if you put money in your health savings account (HSA) first.

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

HSA contributions are tax deductible and can be used for doctor visits, lab work, imaging services, surgery, prescriptions and more. The CARES Act expanded HSA eligibility, so you can now buy menstrual products and over-the-counter medications with your HSA card.

Buy a life insurance policy

Take out life insurance has become a more urgent consideration for many during the pandemic, but consumers can avoid it because of the cost.

According to Policygenius, the average cost of an investment of $ 500,000 over 20 years term life insurance policy is about $ 29 per month for a 35 year old man and $ 24 per month for a 35 year old woman. If you get a refund of $ 300, you could pay about a year of premiums.

Options for private borrowers

While the government only offers repayments for federal student loans, borrowers with private loans still have other options to reduce their payments.

Start by contacting the lender and ask if they are offering a loan. abstention program. Many private lenders are more flexible with borrowers due to the pandemic, providing extended abstention programs as long as two years. You may need to apply for the program every month or so and provide proof of economic hardship, such as unemployment benefits. Again, it depends on your particular loan manager.

Be aware that interest will continue to accumulate during this period and will likely be added to the total principal once the forbearance period ends. This will likely increase your monthly payments and the total amount of interest. As soon as you can afford to make regular payments again, start over to avoid adding more interest to your loan balance.

If you qualify based on your credit score and income, you can also choose to refinance your private student loan has a longer loan term. This will reduce your monthly payments and free up cash. However, you are generally not eligible for forbearance until you have made a certain number of payments on time, so be aware that you may not have the option to forborne your loans immediately afterwards. refinancing.

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