Student loan forgiveness and refund check

October 7, 2023 2:28 PM

My student loans were recently forgiven because I'd been paying for 20 years. My concern is the refund check I received from the US Treasury.

My student loans were recently forgiven because I'd been paying for 20 years. My concern is the refund check I received from the US Treasury.

The check itself is legitimate--it has the watermark.

I've searched high and low for anything about refunds and loan forgiveness. I didn't make payments during the pandemic so I'm not being refunded for that. I've been to my former student loan provider, checked my inbox, the Department of Education website and read about why my student loans were forgiven.

Any idea why I would have received a refund check?

I'm reluctant to cash it if it was a clerical error.

posted by Issithe to Work & Money (9 answers total)

Response by poster: and I have discovered what the refund is for: it's an IDR overpayment refund.
posted by Issithe at 3:02 PM on October 7, 2023 [5 favorites]

Yes, it is not uncommon for there to be a modest overpayment that must be refunded at the time of forgiveness. Cash away.
posted by praemunire at 4:04 PM on October 7, 2023 [3 favorites]

Not even necessarily modest. I got a refund of almost 10k at my forgiveness. It's crazy how much so many of us have been forced to overpay for so long. Anyway, congrats on your forgiveness and refund! It's a great feeling!
posted by CheeseLouise at 7:27 PM on October 7, 2023 [9 favorites]

Yes, if FedLoans screwed you out of a bunch of qualifying payments, you could end up having overpaid by a significant amount. Congrats to you both!
posted by praemunire at 8:29 PM on October 7, 2023 [1 favorite]

I don't know your situation, but I would add a coda to all the "heck yeah, cash it" notes. (I am firmly on team Cash It, too. Go Simoleons!)

But, when loans are forgiven the amount forgiven is often treated as income, and hence subject to income tax. If you weren't expecting that, or if the income tax on the forgiven amount would be a shock to your tax-paying plans come April, it might be worth cashing the check and parking the cash in a high-yield savings account or something in case your income tax bill is larger than usual for the year with the loan forgiveness.
posted by adekllny at 11:57 AM on October 8, 2023 [1 favorite]

I would definitely check to see if the amount forgiven is taxable. I got mine forgiven four years ago and it was not considered taxable.
posted by mareli at 4:17 PM on October 8, 2023

when loans are forgiven the amount forgiven is often treated as income, and hence subject to income tax

IDR forgiveness is non-taxable this year (refunds on overpayment aren't taxable, ever, because they're just giving back your money you didn't actually owe them). But, certainly, don't rely on rando me if you have questions about that!
posted by praemunire at 5:54 PM on October 8, 2023 [1 favorite]

When my loans were forgiven early last year, the only notification I got was hundreds of direct deposits into my bank account one morning of between $4 and $50 each, totaling about $10,000. Scared the crap out of me. In my case, it was a refund on qualifying payments. I also wound up not owing taxes on it. Congratulations, and thank you for the public service you’ve done to qualify for loan forgiveness.
posted by lassie at 8:09 PM on October 8, 2023

I got a refund of exactly one month's payment when my student loans were forgiven in similar circumstances.

In my case it was because my loan payments started February 2001 and I last paid the monthly payment February 2020, before the March 2020 payments were suspended due to Covid.

Count on your fingers, that is 20 years of payments (240 payments) plus exactly one more, and that is the one they refunded.

Also FYI I got the refund check maybe 6 weeks ago and just got the official letter informing me of the debt cancellation a couple of days ago. So when I got the refund check I was scratching my head rather lengthily. There still is no explanation per se about what the refund was for, only inference based on what they said they would do.
posted by flug at 11:50 PM on October 8, 2023