Federal student loan borrowers with large balances and low incomes may qualify for a few options to make their payments more affordable. These plans—income-based repayment (IBR), income-contingent repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE)—even forgive borrowers' remaining balances after 20 to 25 years (10 if they work for a nonprofit or public service employer).
Sounds pretty good, right? That's because it is! But like many good things, there is a catch: You have to qualify for these options each year, and lots of borrowers forget to reapply. In fact, the U.S. Department of Education said in 2015 that 57% of IBR borrowers (around 700,000 people) failed to renew—and ended up facing some unexpected consequences. They're working to simplify this process for borrowers, but you're responsible until then.
If You Don't Renew
Forgetting to renew your income-driven repayment plan on time can increase your monthly payment. How much more will it be? Potentially a lot.
Once you no longer qualify for your current plan, you will be placed in the standard 10-year plan. This plan bases payments on the amount of loans you have, not your income. So, for example, if you had $50,000 in federal student loans with a 4.7% interest rate and an adjusted gross income of $25,000, your IBR payment would be $92. However, that payment jumps to $523 under standard repayment—an increase of more than 500%!
Your Renewal Date
Your loan servicer will notify you by mail or email about your renewal due date, which will be right around the anniversary of your initial application. You'll receive this notification between 60 and 90 days before that recertification deadline.
To make sure you get your notification, open all your mail and email from your servicer and check that they have your correct contact information. Unfortunately, if you miss your deadline, the only one who pays will be you—so be proactive! Set an alert with your renewal date on your phone, email, or an old-fashioned wall calendar (decorated with cute puppies or kittens, of course). This way, you won't forget.
What Information You Recertify
The renewal form may look familiar because it is the same one you used to initially apply for your plan. To re-qualify, you'll once again use this form to document how much you made in the last year and what the size of your family is.
If you filed tax returns in the previous year, you should submit a copy of your tax return to document your adjusted gross income. If you did not file your taxes in the last year or your tax return doesn't effectively represent your income in the last year, you may provide other documentation, such as a W-2 form or pay stubs. Talk to your loan servicer about what they may require for your case.
You will also need to verify your family size. If you don't do this, your family size will be set as "one," which will likely raise your monthly payment if you reported a larger family size the prior year.
How To Submit Your Form
The deadline to submit your information to your servicer is within 35 days of your initial application anniversary. They won't kick you out of your plan until 10 days after your deadline, but why risk it?
If you don't renew in time, you will receive a notification that your payments have been recalculated. Also, all the interest that accrued while you were repaying under your income-driven plan will be added to your principal balance (capitalized)—making those new payments even more expensive.
At that point, you can still submit your documentation to get back into your income-driven plan (provided you still qualify, if required), but you will need to make one of those big standard payments first. If the payment amount is too much for you to handle, speak with your loan servicer about a reduced payment forbearance to cover that one payment.