Most people do not want to wait until November 2021 to get their student loan refund, but they might be in for a rude awakening. It is not possible to get a refund on defaulted student loans until November 2022, unless President Biden extends the freeze. But there is some good news! Students who are eligible for CARES Act student loan repayment are now able to receive a tax refund, and unless President Biden extends the freeze, their refund check will not be due until November 2022.
Tax refunds for defaulted student loans will not be taken until November 2022 unless President Biden extends the freeze
The freeze has been extended multiple times, and the Education Department has informed loan servicers to stop communicating with borrowers. The freeze was first imposed by the CARES Act and has been a vital part of the Obama administration’s efforts to ease the financial burden on borrowers. But the freeze is coming to a close. In an email to borrowers, Education Secretary Miguel Cardona said, “If the president is going to decide to extend this moratorium, we will announce it.”
If the government does not extend the freeze, it can seize tax refunds associated with defaulted student loans and debts from unemployment insurance and child support. The government can also seize up to 65% of federal salary and 15% of Social Security payments, and some student loan defaulters will remain vulnerable beyond Nov. 1. But this policy doesn’t apply to all student loans.
However, this new rule could affect borrowers’ child tax credits. In some cases, borrowers have already started making payments. If they can’t, the government may seize their Social Security benefits or garnish their wages. These consequences may include Social Security benefits or even tax refunds. The Biden administration aims to make the process of rehabilitation as easy as possible for the student loan borrowers.
In addition to these concerns, the government’s decision to implement the moratorium is also problematic. Defaulted student loans have disproportionately affected borrowers of color, those with children, and those on Pell Grants. Further, seizing tax refunds from these borrowers would be incompatible with the goals of the American Rescue Plan. The American Rescue Plan, a pandemic relief law that increased tax benefits, included an enhanced earned-income tax credit, is already under attack from Russia-Ukraine war. Withholding the credit will hinder workers’ ability to find jobs.
If President Biden extends the freeze, it is likely to continue. But this is not the end of the story. The changes could go on until 2023, unless President Biden extends the freeze. If Biden does that, borrowers should refinance now if they have a private student loan. However, federal student loans should be refinanced as soon as possible if rising interest rates threaten to push the interest rates higher.
The freezing will also make it difficult to get a federal tax refund for people who have defaulted on their student loans. For example, if you are currently earning less than $25,000 a year, you will have to wait until 2022 to get a tax refund. If President Biden does not extend the freeze, the refunds won’t be taken until November 2022.
While the tax refunds for defaulted student loans won’t be available until 2022, the penalty-free pause continues until September, which makes it even more important to get a rainy day fund stocked. Even if you’re able to afford your loan payment for now, the money you put aside for an emergency will allow you to catch up on them later.
CARES Act student loans aren’t eligible for a refund
The CARES Act is a new program to give some student loan borrowers a break. It promises deferment for up to five years and 0% interest for up to six. However, millions of borrowers were excited by the prospect of deferring their payments, only to discover later that they didn’t qualify for the program. If you were one of those individuals, don’t worry. There are still other options available for you.
You can still get a refund check for a paused loan through the CARES Act. The federal government is allowing lenders to contribute up to $5,250 for each loan employee. But this program expires after five years. If you are not eligible for the refund check under the CARES Act, you should contact your lender to find out how you can apply for another type of relief. For example, income-driven repayment can result in lower payments and a gradual buildup to loan forgiveness. However, you must not have defaulted on your private student loan before March 13, 2020.
In addition to the CARES Act, the government has passed several stimulus bills over the years. The American Rescue Plan (ARP), which is the latest bill passed by the United States government, contains a provision that removes taxes on student loan forgiveness. However, it only applies to borrowers on an income-driven repayment plan. The American Rescue Plan is another COVID-19 bill, and its provisions expire at the end of 2025.
However, your student loan servicer may still offer a similar relief option. You can contact your loan servicer and discuss your options and whether you’ll be able to get a refund check for your loans in 2021. The CARES Act will not cover private student loans. The CARES Act will cover federal loans, but private loans are not covered.
The CARES Act has also given borrowers a reprieve from federal student loan collection activities for the next five years. This pause in collection activities may save your 2021 refund. Additionally, the Department of Education will give you the option to enter into a payment plan, which could prevent tax refund garnishment. However, federal loans and private student loans are still subject to a broader range of conditions and restrictions. If you are one of those students, you should know the facts about your student loans before filing your taxes.
Getting a student loan refund can be a costly mistake
Many students use their student loan refund checks to pay for non-essential expenses such as trips during breaks or new clothes. However, these items don’t contribute to the academic success of the student. Instead, you should use your student loan refund to cover the cost of educational expenses like textbooks, living expenses, transportation, and miscellaneous personal items. Don’t use your student loan refund to purchase luxuries.
The money you receive from your student loan refund is meant to cover other expenses you had to pay while attending school, such as rent or food. Some students will use their student loan refunds to purchase new clothes or take out. Others will use their student loan refunds for spring break trips or takeout. Whatever you choose to do with your student loan refund, remember that it will come with interest.
If you miss important paperwork, you may be late in getting your refund check. A late application may delay it until the end of the semester, so contact the financial aid office as soon as possible. While you can’t get a guaranteed turnaround time, you can ask for a range. Sometimes it can take until November or until the end of the semester. However, there are some schools that offer cash advances on student loan refunds. Harvard has one of the highest-end student loans available.
Refusing to use the money from your student loan refund is a common mistake. Students who choose to keep their refunds may end up with a high student loan debt. Instead of making the mistake of keeping the money, it’s best to borrow less for school and repay it as soon as possible. That way, they’ll graduate with less debt. That’s why it’s important to take the time to use your student loan refund wisely.
Refunding your student loan is an excellent idea, but it’s important to know what you’ll need the money for and how much you can afford. The amount of money you’ll receive is often lower than you expected. For example, if you’re taking out a student loan to pay for books, you might want to consider holding the money while you’re attending school. But be sure to use it to pay for school-related expenses or to pay back your interest.
Another mistake many people make is attempting to get a student loan refund check before the payoff date is completed. The refund period for student loans ended two years ago, during which interest rates were 0%. So, receiving a refund now would reverse the progress you’ve made, and you’d have to make interest payments on debts that were already paid off. According to Melanie Hanson, Editor in Chief of EDI Refinance, getting a student loan refund check 2021 is equivalent to taking out a new loan for the amount of refunded payments.