Income-based repayment plans base monthly payments for federal student loans on a percentage of your discretionary income and family size. However, your servicer requires you to update your income and family size information each year so they can recalculate your monthly payments. Forgetting or neglecting to recertify your loans may lead to disastrous consequences. Your loans could revert to a standard 10-year repayment plan.
Depending on the amount of debt you carry and which federal loans you have, your monthly payments may jump by hundreds of dollars per month. An example may provide some more clarification.
Let us say that you carry $95,000 in federal loans and had an adjusted gross income of $35,000 in 2015. Your student loans are enrolled in the traditional income-based repayment (IBR) program. Under the IBR program, your monthly payments were slightly over $200 per month for all of 2016. If you did not recertify this year, your monthly payments could jump to almost $1,100 per month once your IBR term for last year ends.
Even if you did recertify, although late, you could be out almost $900. It may be possible to negotiate a lower payment with your loan servicer, but why not just avoid the headache in the first place? Although you can ask your servicer for forbearance while you wait for a late recertification, having your loans revert to a standard repayment plan could lead to the following consequences:
- If you are enrolled in autopay, it may lead to an overdraft of your checking account.
- Subsidized interest may be added to your principal balance, meaning you owe more over the lifetime of your loan.
How Do You Recertify Income-Based Repayment Plans?
Your loan servicer should send you a notice that it is time to recertify your income-based repayment plan. Depending on your servicer, you may be notified in several different ways.
If you do not receive an email warning you it is time to update your income information, log onto your servicer’s web-based portal. The web-based portal is where you make monthly payments. Many servicers also have message centers on these portals.
You will need to go through the Department of Education’s website and link your most recent IRS income tax information. The Department of Education will then send this information to your servicer. Depending on the amount of recertification requests being handled by your servicer and the Department of Education, this may take anywhere from a few days to several weeks.
If the situation with your student loans has become unbearable and you want to explore other options for relief, the Kansas City bankruptcy attorneys at The Sader Law Firm can help. Although bankruptcy may be a solution that fits your needs, there could be other options. However, you may have a more difficult time discovering these options if you do not pick up the phone and speak to one of our attorneys.