Woman's Student Loan Cancellation Means Biden Admin Actually Owes Her Money

A change initiated by the Biden administration earlier this summer allows for student loan borrowers to receive refunds if they paid more than they owe. One nurse from New Jersey is about to see a big payday.

On July 14, the Department of Education (DOE) began notifying 804,000 borrowers with a total of $39 billion in federal student loans that their balances would be automatically discharged if they consistently made monthly payments under income-driven repayment (IDR) plans.

The decision "addressed historical failures" in federal loan programs, allowing borrowers to be eligible for forgiveness if they have accumulated the equivalent of either 20 or 25 years of qualifying months.

Following a pause on student loan payments stemming from the COVID-19 pandemic, interest on loans began to accrue again this month, and payments will resume for over 40 million borrowers in October. The Biden administration has attempted workarounds on loan forgiveness after the U.S. Supreme Court struck down a plan to erase debt for about 37 million Americans, arguing that the president did not have the authority to automatically forgive without Congress' approval.

Lisa Frisby told USA Today that she was financially on her own when she started college in 1993 and borrowed money to pay for housing, tuition and books. She also got a job so she would have health insurance.

But after a mix-up involving her student loan payments in which a decade's worth of her payments seemingly disappeared without record, she was still paying down debts 25 years post-graduation.

She ended up paying about $70,000 worth of payments on a $40,000 loan. But now she is done for good on payments and will receive a refund from the federal government.

StudentAid.gov, which offers assistance to borrowers on federal financial aid for college, states that those who pay more months than required as part of their loan repayment automatically qualify for forgiveness.

Those additional payments made on forgiven loans are refunded on one of three dates, whichever is most recent:

• The date a borrower reaches the required number of payments
• The date when the DOE acquired a loan
• The disbursement date in cases of consolidated loans

Individuals who pay more than required will be notified by their loan service provider when loans are forgiven, with any refunds due in the same manner as borrowers made their monthly payments—such as electronic payment or check.

In most instances, refunds will be processed in two months or less.

Katrina Mosler, 47, of McKinleyville, California, was another of the 804,000 who recently received good news about her loan balance vanishing.

Mosler told Newsweek via email that her debt started in 1997 and was about $5,000 after dropping out of college. She went back to school and graduated in 2008, adding another $12,000 to her debt.

She described her degree as a lead-in to graduate school, as she aspired to become a physical therapist. Her program had about 350 applicants for every one open slot, and the lowest tuition was about $135,000, so she "gave up" and got a minimum-wage retail job instead.

"Since then my income has remained low enough that I didn't need to make payments, which was always bittersweet," Mosler said. "As I avoided payments to budget for living life, my debt grew. In the end it was about $27,000 with a little over $5,000 paid down.

She said she knew about the IDR discharge program but the information was always buried under other options that didn't really apply, and there was never a way to really check on her progress. She remained hopeful that her debt would somehow be forgiven.

"The mental relief is hard to put into words," she said. "It's challenging knowing that getting ahead and making more money is going to equal a larger payment, which would barely affect the balance. Now I feel like there's a chance at a better life. Even at 47, there feels like there is time, when before I just sort of figured I'd die with that debt."

She cries once a week in relief that the debt no longer hangs over her head.

It's a situation millions of others want to be in, too, though the months and years ahead will dictate whether some loan borrowers will succeed while others may default. Some may choose not to pay altogether.

"It's hard to tell how many consumers will be able to handle what will be a noticeable payment shock," Liz Pagel, senior vice president and consumer lending leader at TransUnion, told Newsweek via email. "We have seen some signs of credit deterioration across all credit products as inflation has been increasing.

"For those consumers who are struggling to pay their obligations today, we expect that adding another payment will be difficult. Ten percent of consumers with payments resuming have a delinquency of 30 days or more on one or more products."

Newsweek reached out to DOE via email for comment.

Update 9/27/23, 9:13 a.m. ET: This story was updated with comment from Katrina Mosler and Liz Pagel.