Don’t Make This Mistake If You Use An Income-Driven Student Loan Repayment Schedule

Income-based repayment plans are a big help if you’re having trouble making your federal student loan payments. These plans base monthly payments on a percentage of your discretionary income and the size of your family. However, the Department of Education and your administrator require that you submit information about your income and family size each year so they can recalculate your monthly payments (if necessary).

Failure to recertify your income-driven repayment plan by the due date can have disastrous consequences. Depending on how much student debt you have, your monthly payments could increase by hundreds of dollars.

What can happen if you forget to certify your income-based repayment plan?

A hypothetical example may explain further:

Let’s say you have $95,000 in federal direct loans and you reported an adjusted gross income of $35,000 in 2016. For 2017, you’ve decided to use the classic Income-Based Repayment (IBR) program. Starting in April, her monthly payments were reduced to $200 per month from $1,100 per month (what they were under her 10-year payment plan). To make paying even easier, set up your monthly payments to be withdrawn directly from your checking account before the due date.

Let’s fast forward a few months. In December 2017, your loan servicer sends you an email advising you that you must recertify by February 24, 2018 or your loan payments will increase to $1,100 per month by April 3. However, you have changed your email and phone number. You never get the warning. The 24th of February arrives and you miss the deadline. Once April 3 rolls around, you’re horrified to discover that your checking account is overdrawn by more than $500, including overdraft fees. You can’t pay your rent, utilities, and credit card bill.

Although this is the worst case scenario, many people do not recertify their income-based repayment plans on time each year. In 2015, the Consumer Financial Protection Bureau reported that 57 percent of borrowers using these plans failed to recertify by the deadline. This is not always the borrower’s fault. Loan servicers may not submit recertification documentation on time. Borrowers who submitted their updated information on time may be frustrated by higher payments, even when they did nothing wrong.

The good news is that the Department of Education does not “kick you out” of its income-based payment program. You can still recertify, albeit late. Unfortunately, he stands to lose several hundred dollars. What will likely happen is that your loans will be placed under administrative forbearance while your updated information is processed. This can temporarily stop your unaffordable payments.

It is crucial to remember the recertification deadline. Ask your administrator if they can provide you with this deadline. Always make sure your administrator has up-to-date and accurate contact information. If possible, try to recertify months before the deadline. This can help avoid delays in your recertification.