Student Loan Borrowers: Here’s How to Renew Your Income-Driven Repayment Plan

If you are on an income-driven repayment plan, it’s important to know that you must renew your plan each year in order to remain enrolled. And waiting on your student loan servicer to remind you of that fact isn’t the smartest idea

The Consumer Financial Protection Bureau recently filed a lawsuit against Navient, the country’s largest loan servicer. Among many other claims, the CFPB alleged Navient failed to adequately inform borrowers of their need to renew their income-driven repayment plans.

The outcome of the CFPB’s lawsuit is still unknown. Navient has already taken steps to improve communication with borrowers around repayment plan renewal time. Even so, the news serves as a prime example of why you should learn the details of the income-driven repayment renewal process on your own.

Here’s a quick guide on renewing your income-driven repayment plan. In this guide, we’ll cover:

Choosing an Income-Driven Repayment Plan

  • Income-Based Repayment Plan
  • Pay As You Earn (PAYE) Plan
  • Revised Pay As You Earn (REPAYE) Plan
  • Income-Contingent Repayment Plan
  • Income-Sensitive Repayment Plan

How to Enroll in an Income-Driven Repayment Plan

How to Renew Your Income-Driven Repayment Plan

Choosing an Income-Driven Repayment Plan

The DOE began offering income-driven repayment, or IDR, in 2009 to help ease the burden of student loans on borrowers struggling to repay federal student loans. If you can meet certain income or family criteria, you could pay as little at $0. Another important benefit is for the first three years after enrollment, many borrowers qualify to have the federal government pay part of the interest charges if they can’t make payments.

In addition to the two standard repayment and graduated repayment plans, borrowers have five income-driven repayment plans to choose from. It’s important to note that under most IDR plans, you’ll pay more over time than you would under the standard plans.

Here’s a quick rundown of each:

  1. Income-Based Repayment Plan

The traditional income-based repayment plan generally caps your payment at either 10% or 15% of your discretionary income. Your payments will never be more than what they would be on the standard 10-year plan. Payments are recalculated each year and are based on your updated income and family size.

After 25 years of payments, your loan balance is forgiven, although you’ll have to pay taxes on the forgiven amount when you file your taxes for the year.

  1. Pay As You Earn (PAYE) Plan

Pay As You Earn increases your monthly payment as your annual earnings increase, but generally sets your monthly payments at about 10% of your discretionary income. Only those who took out their first federal loan on or after October 1, 2010, or who received a direct loan disbursement on or after October 1, 2011, can qualify for the PAYE plan. Applicants must also have a partial financial hardship (disproportionately high debt compared to current income). Your payment is recalculated annually based on your updated income and family size. The loan’s outstanding balance is forgiven after 20 years.

  1. Revised Pay As You Earn (REPAYE) Plan

The Revised Pay As You Earn Plan expanded the PAYE plan to about 5 million more borrowers. You may qualify for REPAYE regardless of when you took out your first federal student loan. It doesn’t require you to have a partial financial hardship. REPAYE generally sets payments at about 10% of your discretionary income and doesn’t cap income. Spousal income is considered in calculating payments no matter how you file your taxes. Under this plan, undergraduate loans are forgiven after 20 years, while graduate loans are forgiven after 25 years.

  1. Income-Contingent Repayment (ICR) Plan

This plan caps your monthly payment at either 20% of your discretionary income or the amount you would pay on a two-year fixed payment plan, adjusted for your income. The payments are recalculated each year and based on updated income, family size, and the amount you owe. After 25 years of payments, your balance will be forgiven.

  1. Income-Sensitive Repayment Plan

The income-sensitive repayment plan serves as an alternative to the ICR plan for those who received loans via the Federal Family Education Loan Program (FFELP). It makes it easier for low-income borrowers to make their monthly payments. Under the ISR plan, you can make monthly payments based on your annual income for up to 10 years. The payments are set at 4% to 25% of gross monthly income, and the payment must be larger than the interest that accrues.

Currently, Federal Direct loans and Direct PLUS loans qualify for both IBR plans, but private loans and Parent PLUS loans do not qualify. Read more about your repayment options here.

How to Enroll in an Income-Driven Repayment Plan

If you are unable to afford your loan payments, you can apply for an income-driven repayment plan. The first time you apply for an IBR plan, you can either do so through the government’s website at studentloans.gov or contact your student loan servicer to help you enroll. You’ll need to log in to the platform and follow directions to fill out the application. It should take about 10 minutes, although you may be asked to mail in supplemental documentation to your servicer for review.

You can use the studentloans.gov website repayment estimator to estimate how much your payments, interest, and total amount paid would be under each plan option.

Repayment estimator results from studentloans.gov

Your servicer will notify you once your request has been processed.

How to Renew Your Income-Driven Repayment Plan

IMPORTANT: If you are on an income-driven repayment plan, you have to renew your plan each year.

This will require you to submit updated information about your annual income and family size to your servicer. The time to renew your plan is typically a month or two before the 12-month mark.

If you do not renew your income-driven plan, you’ll get kicked out of your IDR plan and your payment may increase since it will no longer be based on your income.

There are two ways you can renew your IBR plan:

  1. Visit the Federal Student Aid website at studentloans.gov: This is the fastest and generally the most convenient way to renew your plan.

Steps:

  1. When you get to the website, follow the “Apply for an Income-Driven Repayment Plan” link. You will follow the same link if you need to renew your IBR. The form will prompt you to select a reason for your request once you begin.

Select “Apply for an Income-Driven Repayment Plan” to get started:

 

Choose “submit recertification”:

  1. The application will ask you for information such as your marital status, household size, employment, and income. Once you are on the “Income Information” section, you’ll have the option to retrieve and use your most recent income information from your taxes if you filed them with the IRS.

Choose the “annual recertification” option:

The application asks for your personal information:

  1. Follow up with your loan servicer. If you have loans with multiple servicers, you only need to submit the request once. They should all be notified when you renew online via the Federal Student Aid site. Below is an example of a completed submission with one servicer; your other servicers will be listed if you have multiple servicers.

Completed submission:

  1. Use the Income-Driven Repayment Plan Request form

Steps:

  1. Download the official income-driven repayment plan renewal form here on the Federal Student Aid website or on your servicer’s website.
  2. Once you print and complete the form, you can submit it to your servicer’s website if they allow. Navient allows you to upload the completed form. You also have the option to mail or fax the paperwork to your loan servicer.
  3. Your servicer should notify you once your request has been processed.
  4. You should be able to monitor the status of your renewal on your student loan servicer account.
  5. If you mail or fax the paperwork to your servicer, you’ll need to mail one to each servicer individually as they will not be automatically notified of your request.

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3 Lies Your Student Loan Company Might Tell You

Student loan servicer Navient found itself in hot water with a consumer watchdog on Wednesday, when the Consumer Financial Protection Bureau announced a long-anticipated lawsuit against the company. Navient, formerly known as Sallie Mae, is the nation’s largest servicer of both federal and private student loan debt. For years, the CFPB alleges, Navient loan servicers steered borrowers who were struggling to repay their loan debt in the wrong direction, “providing bad information, processing payments incorrectly, and failing to act when borrowers complained.

One of Navient’s biggest transgressions, the CFPB alleges, is that Navient representatives encouraged borrowers to put their loans in forbearance even when it wasn’t the best option. By doing so, Navient potentially added $4 billion to its own coffers in the form of additional interest charges.

The lawsuit is a major wake-up call for the student loan servicing industry as a whole. It should also trouble the millions of student loan borrowers who may rely on their student loan servicer for advice when they are deciding how to repay their debts. With vast numbers of customers to support and an increasingly complicated menu of federal repayment plan options to sort through, student loan servicers may not be the best sources of guidance.

Here are three lies student loan servicers may tell you:

1. “Can’t pay? You’re better off putting your loans in forbearance.”

When you can’t scrounge up the money to cover your student loan bill, forbearance can sound like a dream option. Forbearance allows borrowers to pause student loan payments for up to 12 months at a time. Your loan servicer may encourage you to put your loans into forbearance because it is a much easier process on their end. But here’s what they may not tell you: Interest will continue to accrue on your loans. So while you enjoy the break from those student loan bills, your loan balance will balloon more and more every day. Over time, you could bring your loans out of forbearance only to find out you now have even higher monthly payments because your balance has increased.

If you know you will be unable to make your federal student loan payments for an extended period of time, a better option may be to enroll in an income-driven repayment plan. IDR plans can reduce your payments to an affordable amount based on your annual income (sometimes as low as $0/month). Interest will still accrue if you enroll in an IDR plan; however, the government may cover your unpaid interest charges if your monthly payment is not enough to cover them. That benefit lasts for up to three consecutive years from the date you enroll in the IDR plan. And it does not apply to borrowers whose loans are forbearance.

Another perk of IDR plans is that your remaining debt is generally forgiven after your plan period is over – from 20 to 25 years, depending on which plan you are enrolled in (see chart below).

Source: https://studentaid.ed.gov/sa/

It is especially important for people who work in nonprofit or government jobs to understand their income-driven repayment plan options. After making 120 consecutive federal student loan payments (10 years) while working in the public or nonprofit sector, you may be eligible for public student loan forgiveness. But if you are in forbearance, you are not making any payments at all, which means you do not get credit toward your 120 payments goal. If you are in an income-driven repayment plan, however, those payments will count toward your public student loan forgiveness required payments.

2. “Once you enroll in an income-driven repayment plan, you’re set for life.”

Contrary to what your student loan company may tell you, it is absolutely vital to re-apply for income-driven repayment plans each year. That is because the plans are based on your annual household income. If your income changes during the year, you need to update your income on your income-driven plan in order to calculate the proper monthly payment.
If you do not renew your IDR plan, you could wind up with higher student loan payments you cannot afford and you may risk falling into delinquency again. What’s more, you have to be enrolled in an income-driven repayment plan in order to qualify for federal student loan forgiveness. If you let your enrollment lapse, you could derail your eligibility for future loan forgiveness.

Unfortunately, millions of student loan borrowers fail to renew their income-driven repayment plans each year. The CFPB is working to crack down on student loan companies that do not properly inform borrowers about the deadline to renew, but it’s also up to borrowers to stay on top of their enrollment status. In order to renew your plan, contact your student loan company directly and ask them to re-enroll you. Alternatively, you can download the application and fill it out yourself here: Income-Driven Repayment Plan Request.

Before you enroll in an income-driven repayment plan, know the cons as well as the pros. You may reduce your monthly payment but pay more in interest over the long term. Also, if your loans are ultimately forgiven, you may owe federal tax on that forgiven amount. Use this student loan repayment calculator to find out if IDR is the right plan for you.

3. “We’re happy to allocate your payment to whichever loan you want.”

Student loan borrowers often have multiple loans to manage. Let’s say you’ve got five student loans. One month, you realize you have an extra $200 to put toward those loans. Theoretically, you should be able to ask your loan company to take that extra $200 and apply it to the loan with the highest interest rate. It is generally considered wise to allocate extra payments toward whichever loan has the highest interest rate. This way, you are working to reduce the loan that is accruing the most interest each month and avoiding spending more on interest than you have to.

In the case of Navient, the CFPB alleged that the company’s representatives repeatedly misallocated borrowers’ payments. In order to fix the issue, the borrowers themselves had to keep a close eye on their monthly payments and alert the company.

It’s important to review your loan statements carefully each month to be sure your payments are allocated the way you desire. Some student loan servicing websites make it fairly simple to allocate your payments manually, without having to rely on the help of one of their loan specialists. Even so, play it safe and double-check your loan statements to be sure your payments are being applied according to your wishes.

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