What You Should Know About Changes to Income-Based Student Loan Repayments
To help students afford the high price of college, many loan repayment plans are based on the students’ income. The U.S. Department of Education offers four income-based student loan repayment programs:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Repayment Plan (PAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
Payments range from 10 to 20 percent of a borrower’s discretionary income with 20 to 25-year terms. As a borrower’s income and family status change, as does their monthly payments, so borrowers need to recertify their information every 12 months.
As with virtually everything in life in 2020, income-driven repayment plans are changing. However, unlike other student loan policies that were adopted in response to the pandemic, these alterations were months in the making. In addition to a sleeker, cleaner student aid website, late last year President Trump signed a bill that will shake up how income-based repayment is done.
The FUTURE Act
While the FUTURE Act had little to do specifically with these loan repayment plans, one aspect of the bill will impact them. The bill included funding for historically black colleges and universities and other minority-serving institutions. In addition, the bill allows for easier communication between the IRS and the Department of Education. The major result is that the FAFSA will be much easier to fill out in the future, as the data sharing allows for the DOE to shave off at least 22 questions from the application.
The streamlined relationship between the IRS and DOE also impacts income-based repayment recertification. Typically, borrowers need to recertify their financial info annually to see exactly what they owe each month for the next year. For instance, the REPAYE Plan requires borrowers to pay 10 percent of their monthly discretionary income toward their debt. As your income shifts, so does your monthly payment.
When and How to Recertify
Recertifying can be a tedious process for some people but usually takes about 10 minutes to complete. Generally, all you need to do is head to the student aid website, click the option to recertify income, and follow the steps. They include filling out some basic info about your income, family status, and spouse’s income if applicable.
Your loan provider has to inform you of your recertification deadline. It should line up with whenever you first began your repayment program, and everything will be due within 10 days of the deadline provided. If, for any reason, your lender hasn’t reached out to you, feel free to inquire about these deadlines.
Once you’re notified, it’s a good idea to make a plan to recertify as soon as possible so you don’t forget later!
Automated Recertification
If a borrower misses a recertification deadline, he or she could end up seriously costing themselves. Your interest may capitalize, or your progress toward loan forgiveness could be wiped away. Under the new IRS-DOE data sharing plan, that process would be automated.
Borrowers would need to allow the IRS to share their info with the DOE, but after signing off once the process will be automated forever. Ideally, this would eliminate any missed-recertification penalties, and help borrowers stay on top of their debt more easily.
As with any government program, it remains to be seen exactly how truly streamlined this process will become. However, these provisions in the FUTURE Act create far more positives than negatives for income-based student loan borrowers.
