The Washington Post

Md. mom doesn’t regret paying off student debt days before relief plan announced

- Michelle Singletary

Patricia Young made the last payment on her daughter’s federal student loans on Aug. 8.

Then on Aug. 24, President Biden announced a one-time forgivenes­s program that will wipe out up to $10,000 in federal student loan debt and up to $20,000 for Pell Grant recipients for individual­s who earn $125,000 or less per year, or less than $250,000 for married couples.

Young, of Clinton, Md., doesn’t have any regrets about paying off the loans.

She took advantage of the payment pauses enacted during the pandemic to pay off $12,000 in loans interest-free. Although there had been discussion­s at the time about loan forgivenes­s, Young said she wasn’t waiting to see if it would happen.

“I just said, let me keep throwing money at the debt and get it down.”

Young’s daughter graduated from the University of Maryland Baltimore County in 2019 and did postgradua­te work at the American Musical and Dramatic Academy in New York, graduating last year.

Like many other borrowers who could afford to continue making payments, Young saw a tremendous opportunit­y to aggressive­ly pay down her daughter’s education debt. Despite the pause, more than 9 million borrowers with Education Department-held loans made payments between April 2020 and June 2022, according to a Department of Education spokespers­on.

Now that the loan forgivenes­s plan has been announced, some regret their aggressive debt reduction. They are taking advantage of a loophole allowing them to claw back their payments and put the refunded loan amount back on the lenders’ books so they can then apply for forgivenes­s under Biden’s plan.

While they took advantage of the zero-interest relief, these borrowers now want to benefit from this newest loan forgivenes­s.

It might work like this. Say you paid off $10,000. You call up your loan servicer and ask for a refund for the $10,000. You get the money back, and your loan is reinstated to $10,000. Then you apply for forgivenes­s under the Biden program.

What people are doing is technicall­y allowed. Borrowers have one year to apply for a refund for payments made during the payment pause that began on March 13, 2020, according to the Education Department.

What’s been killing folks is how student loan interest can increase the loan balance over time. Interest that is not paid through forbearanc­e or deferral gets added to the principal, and then interest is charged on the new, larger balance.

Every time the government extended the student loan pause program, Young said it allowed her to pay down more of the principal. She decided to pay $300 per pay period — $600 per month. With the interest rate on the loans at zero percent, all her payments went directly to reducing the loan principal.

After her two July payments, the balance was down to $208.18, which she paid in August.

Young said she’s already benefited from the covid emergency relief.

“The one good thing that came out of covid was that they paused the interest payments,” she said. “Well, that gave me time to pay back the money.”

Many people requesting refunds intending to take advantage of Biden’s loan forgivenes­s are not struggling financiall­y. They didn’t lose their job during the pandemic. They had more disposable income because pandemic shutdowns reduced their spending on eating out or other discretion­ary expenditur­es, freeing up money to pay off their loans.

As my grandmothe­r Big Mama used to say, you can be right and be wrong.

Should you take advantage of the refund loophole?

Yes, request a refund if you truly need it.

But, as a taxpayer who will be footing the bill for this new loan forgivenes­s, I appreciate Young’s decision.

“My daughter used the money to get the education. She got a degree. I don’t really feel like I should even go through the process of trying to take advantage of the relief that they are giving people now,” Young said. “I could pay back the money, and it was a blessing that I was able to do it. I was in the position financiall­y that I could pay it back.”

By the way, just because you made payments and are seeking a refund doesn’t mean your loan is eligible for cancellati­on.

“They would still need to meet the income threshold of below $125,000 for individual­s or $250,000 for married borrowers,” the Education Department spokespers­on said.

There’s so much discourse over Biden’s loan forgivenes­s plan. Some people are bitter that borrowers are getting their loans forgiven. Others feel the forgivenes­s is fair after struggling for years under an oppressive amount of debt.

Young is empathic to both viewpoints. She may not get everything she’s entitled to, but she’s satisfied with the relief she has received.

“For those who do qualify and will have a portion of their debt forgiven, I couldn’t be happier for them because I know what it feels like to have some of that burden lifted from your budget,” Young said.

“The forgivenes­s is a good start but, in my opinion, the entire student loan process needs to be revamped so that the payments do not become such a burden. But that’s another conversati­on for another day.”

“For those who do qualify and will have a portion of their debt forgiven, I couldn’t be happier for them.” Patricia Young

 ?? Shawn THEW/EPA-EFE/SHUTTERSTO­CK ?? Student loan forgivenes­s advocates rally outside the White House last month to celebrate President Biden’s decision to cancel a portion of the education debt held by millions of Americans.
Shawn THEW/EPA-EFE/SHUTTERSTO­CK Student loan forgivenes­s advocates rally outside the White House last month to celebrate President Biden’s decision to cancel a portion of the education debt held by millions of Americans.
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