Income-driven repayment plans are a great help if you are struggling to make your federal student loan payments. These plans base monthly payments on a percentage of your discretionary income and family size. However, the Department of Education and your administrator require you to 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 deadline can have disastrous consequences. Depending on the amount of student debt you have, your monthly payments could increase by hundreds of dollars.
What can happen if you forget to certify your income-driven repayment plan?
A hypothetical example may explain more:
Let’s say you have $95,000 in federal direct loans and reported an adjusted gross income of $35,000 in 2016. For 2017, you’ve decided to use the classic income-based repayment (IBR) program. Beginning in April, his monthly payments were reduced to $200 per month from $1,100 per month (what they were under his 10-year payment plan). To make paying even easier, set up your monthly payments to be drawn 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 warning you that you must recertify by February 24, 2018 or your loan payments will increase to $1,100 per month by April 3. However, he has changed his email and phone number. You never get the warning. February 24 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-driven 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 fault of the borrower. Loan servicers may not submit recertification paperwork 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 put into administrative forbearance while your updated information is processed. This may 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 current and accurate contact information. If possible, try to recertify months before the deadline. This can help avoid delays in your recertification.
