Income-Driven Repayment (IDR) Plans can be a lifeline for borrowers who are struggling to make their student loan payments on their current income. IDR plans take into account your household size and income and can reduce your monthly payments to as little as $0.
In order to enroll in an IDR plan, you must call your lender and apply. What many borrowers don’t realize, however, is that enrolling in IDR is not a one-time task. Borrowers must renew their enrollment each year by submitting a new IDR request form.
This annual update, in which you report any differences in income and household size over the last 12 months, is called a renewal or recertification. The new information is used by loan servicers to recalculate your monthly loan payment for the upcoming year.
The consequence of not renewing your IDR Plan before the annual deadline is severe. Your payments will no longer be based on your income. As a result, your loan payment can increase substantially.
Here’s how to renew each year to keep your payments manageable:
Step 1: Make sure you qualify for an Income-Based Repayment Plan
There are four Income-Driven Repayment Plans available, including:
- The Revised Pay As You Earn (REPAYE) and Pay As You Earn (PAYE) Plans – Payments are generally 10% of your discretionary income
- The Income-Based Repayment (IBR) Plan – Payments are generally 10% to 15% of your discretionary income depending on whether you’re a newer or older borrower
- The Income-Contingent Repayment (ICR) Plan – Payments are the lesser of either 20% of your discretionary income, or what you would pay on a repayment plan with a fixed monthly payment over 12 years
If you’re interested in an IDR Plan, the first step is seeing if your student loans are eligible. You can find out what student loans qualify for each IDR Plan here.
Step 2: Ask for your renewal deadline
Your loan servicer may or may not notify you before the renewal deadline. So, be sure to call your loan servicer if you’re unsure when you need to update your family size and income.
When you get the date, put a reminder on your calendar to begin investigating the renewal process a few months before the deadline. Getting a head start on renewing the plan will give you time to reach out to your loan servicer if you have any questions or need help filling out the paperwork.
Step 3: Gather renewal documentation
Renewing your IDR Plan is similar to the initial application. You need to report the size of your family and the taxable income you’re bringing in. Examples of taxable income include:
- Employment income
- Unemployment income
Examples of income that isn’t taxable and that won’t be considered when calculating your IDR payment include:
- Supplemental Social Security income
- Child support income
- Federal or state public assistance
You can submit a tax return to report earnings if your income hasn’t significantly changed since you last filed taxes. If your income has changed significantly since your last tax filing, you need to submit other documents such as pay stubs or a letter from your employer to show what you’re currently earning.
For other sources of income, you can submit a separate statement.
Step 4: Renew online or with the paper form
There are two ways you can go about renewing your IDR Plan. You can go online through the StudentLoans.gov website or you can get the Income-Driven Payment (IDR) Plan Request form from your loan servicer to send in.
To renew online, go to the Income-Driven Payment page of StudentLoans.gov here. This page will look familiar. It’s the same webpage you go to when initially signing up for an IDR Plan. Returning users click on “Submit Re-certification.”
Using the online form can make your life easier in two ways. You can grab your IRS tax forms electronically for submission through the StudentLoans.gov online dashboard. And if you have multiple loan servicers, StudentLoans.gov will notify each one of the updates you submit.
Sending in the IDR request form
The other option for renewal is completing the paper Income-Driven Repayment (IDR) Plan Request form and mailing it or faxing it to your loan servicers. Some loan servicers like Navient allow you to upload paper documents to your online account as well.
The drawback of using the paper form instead of the StudentLoans.gov website is that you need to submit the request to all loan servicers separately.
Step 5: Follow up
After turning in your IDR request, you’re not in the clear until your renewal has been processed. You may not hear back right away if additional documentation is needed to process your renewal. So, follow up to make sure your request doesn’t get held up beyond the deadline because of missing information. Even if online it shows the status of your request as received, you should call to confirm you’re all set for the next year.
What should you do if you miss the renewal deadline?
As previously mentioned, your monthly payment will no longer be based on your income and family size if you miss your annual IDR renewal deadline. If you receive a student loan bill that’s much higher than you expect and realize your IDR renewal request didn’t go through, take a deep breath.
If you followed the submission instructions and confirmed the processing of your IDR renewal beforehand, call your loan servicer to see if there is a system error. Some borrowers on IDR Plans have reported errors in the renewal process that caused their payment to increase by mistake.
On the other hand, if you forgot to send in your IDR request altogether, ask what options are available. You can recertify after the deadline if you’re under the PAYE Plan, the IBR Plan, or the ICR Plan.
If you’re under the REPAYE Plan, you’ll be booted off to an alternative plan that’s not based on your income, but you are able to apply for another IDR Plan if you qualify.
The problem with renewing late (or applying for another plan if you were on the REPAYE Plan) is you may get stuck with an increased payment for a month or two until you get approved for reduced payments again.
Forbearance may be a short-term solution if you cannot afford the higher payment. Forbearance postpones your payments and can hold you over until the IDR Plan begins. The drawback of forbearance is that during this period interest on your loan may be capitalized. This means interest may accrue and increase your loan balance.
Speak with your loan servicer about the implications of forbearance and what alternatives there could be if you cannot afford your loan payment without the IDR Plan you had.
For borrowers taking advantage of an Income-Driven Repayment Plan, the recertification deadline is one of the most important dates of the entire year. Set multiple calendar and mobile reminders if that’s what it’ll take for you to remember it.
Also, be sure to review the information you need to provide for renewal a few months beforehand if it’s your first time around. Finally, don’t be afraid to call your loan servicer before the renewal deadline to double- and triple-check that the information you submit is sufficient for recertification.
The post Don’t Miss This Deadline to Renew Your Income-Driven Student Loan Repayment Plan appeared first on MagnifyMoney.