PSLF Refund Overpayment: How it Works

You’re entitled to a refund if the PSLF Waiver credits you for more than 120 qualifying payments on an existing Direct Loan. But if you made those payments towards a Federal Perkins Loan or FFEL Loan and then consolidated, you won’t get a refund.

The Public Service Loan Forgiveness Program promises tax-free debt relief after borrowers work for the government or a nonprofit organization for 10 years while repaying their Direct Loans on-time under an income-driven repayment plan.

Sounds simple, right?

Unfortunately, many public servants who attended college before the mid-2010s didn’t have those types of loans. Sure, they had federal student loans. But they had loans made under different programs that didn’t automatically qualify for PSLF cancellation. To qualify, they needed to consolidate their Federal Family Education Loans and Perkins Loans into a Direct Consolidation Loan.

Again, simple enough.

But the problem is that none of the payments borrowers made before they consolidated counted as qualifying payments for PSLF. They had to pay for 10 more years before their student debt could be forgiven.

That changed during the pandemic. The Biden administration temporarily relaxed the program’s eligibility requirements to allow borrowers to consolidate and get retroactive PSLF credit for the monthly payments they made before consolidating, and some of the time that their loans were in deferment or forbearance.

Since being announced last October, the Limited PSLF Waiver has erased more than $10 billion in federal student loan debt for nearly 200 thousand public servants — many of whom paid for much longer than they needed to had they had the right loans from the beginning.

The question many of them have is, “Will I get a refund for PSLF?”

The answer is that it depends.

Related Reading

• How Temporary Expanded PSLF Works

• How to Apply for Public Service Loan Forgiveness

The Education Department refunds the payments borrowers make on their existing Direct Loans beyond the 120 required for relief. Those who made most of their student loan payments towards FFEL and Perkins Loans won’t get a refund. The Limited PSLF Waiver doesn’t change that outcome.

Here are some examples.

• Mary has worked full-time for the Veterans Administration since 2010. She applied for the temporary waiver and got credit for making 143 qualifying payments on an existing Direct Loan. The U.S. Department of Education will write off her remaining balance and issue her a refund for the 23 extra payments she made.

• David has worked full-time for several qualified employers since 2007. He heard about the waiver, checked studentaid.gov to see what type of loans he had, realized he had the wrong loans, and consolidated the loans into a Direct Loan in 2022. He submitted a PSLF Form to MOHELA. A few months later, MOHELA adjusted his payment count to 160. He will not get a refund for the 40 extra payments.

• Adrian has taught at a public school since 2000. They consolidated their FFEL and Perkins Loans into a Direct Consolidation Loan in 2010. They applied for PSLF in 2020, but their application was denied because they made payments under the wrong repayment plan. They applied for relief again after the waiver was announced and got credit for 150 payments, but only 130 payments were made on the Direct Loan. They will get a refund for the 10 extra payments made on the Direct Loan, but not those made before they consolidated.

• Connie has been a nurse at several public hospitals since 2005. She consolidated her loans in February 2019. She submitted a PSLF Form and her servicer determined that, under the waiver, she had made 120 payments as of January 2018. She will get a refund for the payments made after February 2019, but she won’t get a refund for the payments made before she consolidated.

• Terry applied for PSLF in 2018, and her loans were forgiven. She will not get a refund for any PSLF overpayment.

• Daniel borrowed Parent PLUS Loans for his daughter. He made 140 payments on the loans under the wrong repayment plan. He consolidated his loans with FedLoan during the pandemic and submitted a PSLF application. He will not get a refund and is not eligible for the waiver. Parent PLUS borrowers are eligible for the PSLF Program but not for the waiver. So he can’t get credit for the prior payments he made towards the loans.

In addition, you’re not eligible for a refund under the waiver if you already paid off your loans or they were already forgiven.

Source (studentaid.gov): What Happens if My Public Service Loan Forgiveness (PSLF) Application is Approved?

Once your loan servicer determines that you’ve made extra qualifying payments towards PSLF and are eligible for a refund, the money should be returned to you within 4-6 weeks.

The refunded payments will be sent to you using the same method that you made the payment (i.e., online payment or check).

To speed up the process, make sure that your contact information — address, phone number, and email address — are up to date and that your banking information — routing and account number — is accurate.

And if you haven’t applied for forgiveness yet, use the PSLF Help Tool on the Federal Student Aid website, studentaid.gov, to generate the form.

Note: Your refund may be offset if you owe the federal government another debt, such as unpaid child support or taxes.

Another possible refund is for the payments you made during the payment pause toward loans covered by the forbearance. Even if you get a refund, you’ll still get credit towards PSLF for each month your Direct loans were in forbearance — Mar. 2020 through Dec. 2022 — so long as you worked for a qualifying employer at the time.

In addition, you can get a refund if you paid your loans during the pandemic and you’re one of the 40 million student loan borrowers eligible for President Biden’s cancellation plan. You qualify if you earned less than $125 thousand in 2020 or 2021 — $250 thousand if you’re married and have a current loan balance owed on your federal loans or you paid them off during the student loan freeze.

To request a refund, contact your loan servicer and ask them to return the payments you made during the pandemic.

Learn More: $10,000 Student Loan Forgiveness Program

If you think you may be eligible for a PSLF refund, reach out to your loan servicer to confirm and begin the process. Remember, make sure that your contact and banking information is up-to-date in order to speed up the refund process. And if you’re one of the 40 million Americans eligible for cancellation under President Biden’s plan, you may also qualify for a refund of $10 to $20 thousand.

Let’s talk if you have questions about getting a refund or qualifying for the PSLF Program.

UP NEXT: How to Apply for Student Loan Forgiveness