Income-driven repayment (IDR) plans provide everyday relief for borrowers who just can’t manage their current student loan payments, and they’re a crucial tool to keep federal student loans manageable.
Unfortunately, I see a lot of borrowers thinking these plans are one-and-done deals. That’s not the case! Borrowers need to reapply annually for the entire length of their repayment period, and nearly 60% of borrowers aren’t following through on this crucial step. As a result, many borrowers go into default even though their payments could be less than $10 per month. Many borrowers also get stymied by the application process and don’t end up taking advantage of the program at all.
So, here are some tips for managing IDR plans and not getting lost in paperwork:
1. Don’t Worry About The Length
The IDR application is 12 pages long, but don’t get discouraged. Many of the pages define eligibility for all of the plans and outline monetary examples. Only the first three pages require you to answer questions, and you sign on the fourth page. (Not encouraging you to disregard the rest of the application at all!)
The application is for four different IDR plans: income-based repayment (IBR), income-contingent repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). Don’t worry, you don’t need to know the ins and outs of each. In question 2 on the form, you can opt for a specific plan or ask for the lowest monthly payment. That way, your loan holder does all the hard work for you.
2. Spouse Information
If you’re married, you need to include your spouse’s income and information whether you file your taxes separately or not. Some plans don’t require your spouse’s information and others do, but your spouse’s income does need to be included even if the information isn’t used in the calculation. If you indicate that you are married and don’t include your spouse’s information, your application will be rejected and you’ll need to start all over again.
Note: If you are legally separated, a victim of domestic abuse, or have another very unique situation, you may be able to exclude your spouse’s information. Talk to your loan holder.
3. Reapply Annually
IDR plans base your payments on your most recent tax year’s income, and you need to resubmit this information annually. If you don’t, you are kicked out of your repayment plan and your payments will likely jump up considerably. Many borrowers get to this point, get frustrated, and give up, leading them to later default on their loans. Stop this from happening by opening all of your mail and email from your loan holder so that you don’t miss your annual resubmission deadline or make a note of the date somewhere that it won’t be neglected.
What questions or problems have you had with the IDR application process?