If you utilize an income-driven student loan repayment program, avoid making this mistake
If you are having a difficult time making payments on your federal student loans, income-driven repayment plans are a huge help. These plans base monthly payments on a portion of your discretionary income and the size of your family. However, the Department of Education and your servicer require you to send them your income and family size details each year so they can (if necessary) recalculate your monthly payments.
You risk severe repercussions if you don’t recertify your income-driven repayment plan by the deadline. Your monthly payments may increase by several hundred dollars, depending on the amount of student debt you have.
What Might Happen If Your Income-Driven Repayment Plan Isn’t Certified?
A hypothetical illustration can clarify further:
Consider that in 2016 you reported an adjusted gross income of $35,000 while having $95,000 in federal Direct loans. You have made the choice to apply the traditional income-based repayment (IBR) program for 2017. As of April, your monthly payments decreased from $1,100 (the amount they would have been under your 10-year repayment plan) to $200. You arrange for your monthly payments to be deducted directly from your checking account on the due date to make repayment even simpler.
A few months from now, let’s. Your loan servicer emails you in December 2017 with a notice that you must recertify by February 24th, 2018, or your loan payments will rise to $1,100 per month by April 3rd. Your email and phone number, however, have been updated. The warning never comes to you. You realize you missed the deadline on February 24th. You’re horrified to learn on April 3rd that your checking account is overdrawn by more than $500, overdraft fees included. You are unable to pay your rent, utilities, and credit card bill.
Though it’s the worst-case scenario, a lot of people fail to timely recertify their income-driven repayment plans each year. According to a report from the Consumer Financial Protection Bureau from 2015, 57% of borrowers who used these plans missed the deadline to recertify. The borrower may not always be at fault for this. Loan servicers might not submit the required paperwork for recertification on time. Even though they did nothing wrong, borrowers who timely submitted their updated information may feel aggrieved by higher payments.
The Department of Education does not “kick you out” of your income-driven repayment program, which is good news. Though late, you can still recertify. Sadly, you could lose several hundred dollars. Your loans will most likely be put into administrative forbearance while your updated information is processed. Your unaffordable payments may temporarily stop as a result.
It is critical to keep in mind the recertification deadline. Find out if your service provider can give you this deadline by asking them. Always check that the contact information provided by your servicer is current and accurate. Recertify if at all possible months beforehand. This could help you avoid any delays with your recertification.
