Tackling your biggest income-driven repayment plan questions: part two
So, you’re interested in an income-driven repayment plan for your federal student loans. If you read part one of our two-part series, you already have the answer to three top questions:
1. What is IDR and is there a fee to enroll?
2. How will enrollment in an IDR plan affect my outstanding balance and the amount of time it will take to pay back my loan?
3. Which plan is best for me and how do I enroll?
In this second article, we discuss how you can enroll in an IDR plan if you are behind on payments, what you must do to remain enrolled in your payment plan each year and how loan forgiveness works through IDR.
4. Can I enroll in IDR even if I’m behind on my payments?
Yes, administrative forbearance may be used to cover any delinquency and bring your account current when you enter a new repayment plan such as IDR.
However, it’s important to know that under the administrative forbearance plan, the interest that accrues while you’re not making payments will be “capitalized” or added to your loan balance.
If your next payment is coming up, you may need more time to gather your documentation and apply to get your loans enrolled in IDR. If so, your loan servicer can help you enroll in deferment or “administrative forbearance,” if necessary. Be sure to submit your completed application as soon as possible to avoid staying in deferment or forbearance any longer than necessary.
Pro Tip: If you’re having trouble making payments, reach out to your servicer for help sooner rather than later. The longer you put off payments and avoid getting help, the more challenging it becomes to get back on track.
5. Once I’ve enrolled, what do I have to do to stay in an IDR plan?
A lot can change in a year. Maybe you got a raise, a new job or experienced some other life change that impacts your earnings. Because monthly payments in IDR plans are determined by your income, federal requirements mandate that borrowers re-certify their incomes annually. Just like you file your income taxes annually, you should expect to renew your IDR plan yearly as well.
If you’re a Navient customer, watch for a notification about 95 days before the end of the annual payment period alerting you that you can complete your annual renewal paperwork, followed by additional reminders as the date gets closer. These alerts let you know how much your payment would go up if you don’t recertify your IDR plan payment.
Pro Tip: We want our customers to be financially successful so we may reach out to offer our support. Set your communications preferences by choosing either email or postal mail to ensure you never miss an important message about your student loans. We recommend you select email as your preferred communication. This way, we can quickly deliver important documents to you without the wait. When you receive a communication from your servicer, always read it and stay connected with your student loans and servicer.
6. How does IDR loan forgiveness work?
If you have a loan balance left after making payments for the 20- to 25-year time frame under your IDR plan, you may be eligible for loan forgiveness. Many people will pay off earlier, though, since payments increase with future salary increases. Keep in mind you will likely pay more in interest over the life of the loan even if you receive some form of loan forgiveness (see Example Repayment Plan Calculations chart from part one). You can always accelerate your payoff time frame and reduce interest costs by paying extra at any time or switching to another repayment plan (Check out the Federal Student Aid Repayment Estimator).
Under current tax law, any amount forgiven under regular IDR payment programs (20–25 years) may be considered taxable income.
Other forgiveness, cancellation and discharge options are available for qualifying federal loan customers, including Public Service Loan Forgiveness for Direct Loans. To learn more about these options and eligibility requirements, visit Studentaid.ed.gov.
Pro Tip: You don’t need to pay for help with your federal student loans. Even though some third-party companies may offer to lower your payments or forgive your student loans for a fee, these are the same programs your servicer can help you enroll in at no cost. Sometimes borrowers don’t realize that the entity they are working with is not their loan servicer. Your loan servicer will never ask you for a fee to apply for an IDR plan and will not ask you to provide them with your student loan account password.
Still have questions on IDR plans? Reach out to your federal student loan servicer and check out these tips from successful borrowers.
Angie Kamionka is the senior director of the Office of the Customer Advocate for Navient, a company that helps about 10 million Americans successfully manage their student loans.