"You’ve borrowed more than you need for college. What do you do? Many borrowers don’t realize they can return unused federal-loan dollars. Or why they would want to," The Wall Street Journal reports.
Generally no interest or loan fees are charged on federal student loans that are returned (whether by the borrower or the school) within 120 days of loan disbursement, according to Federal Student Aid.
But that doesn’t mean you should wait that long.
Schools typically dole out loans on behalf of the federal government in at least two payments, or disbursements, per academic year. Ideally, you’ll want to cancel the loan before it is disbursed because that is easiest for everyone, says Brenda Hicks, director of financial aid at Southwestern College in Winfield, Kan. Schools have different timelines for disbursing the funds, the earliest being 10 days before a semester begins.
Even once a federal loan has been disbursed, you can still tell the aid office you don’t want the money and the school must return it on your behalf within 14 or 30 days after sending the required notification of your loan-cancellation rights. How long you have depends on the process the school used to obtain confirmation of loan acceptance before funds were disbursed.
If you miss the school’s 14- or 30-day deadline, it’s still a good idea to gauge the school’s willingness to return the money on your behalf. While they don’t have to, many schools readily work with borrowers to return loan funds on their behalf within 120 days of loan disbursement. Most schools have a form students can fill out to request adjustments to their aid.
After 120 days from disbursement, however, students generally need to work with their loan servicer to pay back the funds directly, including any applicable interest or loan fees. Make sure to provide written instructions to the servicer about how the funds should be applied, so there is no confusion, says Karen McCarthy, director of policy analysis at the National Association of Student Financial Aid Administrators."
NASFAA's "Notable Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Articles included under the notable headlines section are not written by NASFAA, but rather by external sources. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.
Publication Date: 4/5/2021