Recertification time for borrowers on an income-driven repayment (IDR) plan can stir up some anxiety: “Will my payment go up?” “What is it basing the payment off of?” “I got married this year … How will that impact my payment?”
This how-to guide will break down frequently asked questions and help you feel more confident when you complete this reporting requirement.
Tips for filling out your IDR Plan Request Form
First things first, let’s cover some basics, which may cover a lot of questions for single borrowers:
1. When to recertify for income-driven repayment
You can submit an Income-Driven Repayment (IDR) Plan Request Form at any time; you’re just required to submit it one time a year on your IDR anniversary date. If your income has dropped for example, this would be a great time to consider completing a new application to immediately recalculate your payment because your payment is no longer reflective of your current income.
Take note of the different application purposes and apply accordingly:
- New Applicants: You are not currently on an income-driven plan and want to apply.
- Returning IDR Applicants: Submit annual recertification of your income.
- Recalculate my monthly payment: If your income or family size has changed you can request that your income-driven payment be recalculated to reduce your current monthly payment.
- Switch my current plan to a new plan: If you are currently enrolled in an IDR plan and would like to switch to another IDR plan.
2. How your adjusted gross income factors into your IDR plan
The IDR Plan Request form will always link back (or try to link back) to your most recently filed tax return to collect your adjusted gross income. If the IRS data retrieval tool does not successfully link to your last tax return, it could be because:
- Your name and/or address was not exactly how it appeared on your last tax return (e.g., putting “Sam” for your first name if your return said “Samantha”).
- The IRS website might be offline or experiencing some other technical issues.
- If you filed your taxes electronically within the last three weeks or via postal mail within the last 11 weeks, your tax information might not be available yet.
- Your federal tax return indicated a balance owed, which may result in a delay in processing.
If the tax return does not link through or you answer “Yes” to the following question: “Has your income significantly decreased since you filed your last federal income tax return? For example, have you lost your job, or experienced a drop in income?” then you will be required to submit alternative documentation for them to calculate your payment (i.e., a paystub).
The IDR Plan Request application will ask you to “Estimate Your Payments” by requiring you to enter your AGI. This is somewhat arbitrary in the sense that they do not use this information to calculate your payment. They use the IRS data retrieval tool information or the alternative documentation you submit. The AGI on your application is more or less an “FYI” to help you get an idea for what you can expect your payments to be on any one of the repayment options available in the federal system.
The projected cost and payment over time they give you is based off of a 5% growth rate in your income year over year, so it’s not necessarily reflective of what you can totally expect. Schedule a consultation here to get your customized student loan plan.
3. How to reduce your AGI
Because your payment is based off of AGI, you can lower AGI by saving in your pretax accounts, such as 401(k)/403(b) retirement account, individual retirement account or health savings account. The maximum allowed in your employer retirement plan is $19,500 for the year 2020. Contributing to pretax accounts reduces your AGI, which reduces your student loan payment while building your long-term wealth.
Answers to FAQs about recertifying your income
How does “family size” factor into my payment calculation?
Family size matters for your IDR plan because it’s part of your payment calculation. Your payment is based off of discretionary income, which factors in the poverty line for your household size. You count as one household member. If you have a spouse, you have a household size of two. The application will automatically count you (and your spouse, if applicable).
The application will ask you how many dependent children you have, which is different from a dependent child for tax purposes. This question is pretty black and white: “How many children, including unborn children, are in your family and receive more than half of their support from you?”
Then, it will ask you about other dependents: “How many other people, excluding your spouse and children, live with you, and receive more than half of their support from you?” Remember, this question may not reflect who you claim from a tax perspective, and that’s okay. Answer the question being asked.
What if I lie on the application about my family size or dependants to reduce my payment?
Don’t lie. Any person who knowingly makes a false statement or misrepresentation on this form can be subject to penalties, including fines, imprisonment or both.
What changes if I got married this year but we haven’t filed taxes together yet?
Under marital status, you will need to disclose that you’re married (unless you’re not legally). If you indicate you are married, you get the poverty line deduction for a household size of two.
The next question will be: “If placed on the ICR plan, do you want to repay your Direct Loans jointly with your spouse?” If you want your spouse’s income to be included in your payment calculation, say yes. If not, say no. Note: The REPAYE plan counts joint income regardless.
It will then use the IRS data retrieval tool to link back to your most recently filed tax return, which should be for a single filer.
The next questions will trigger whether or not to ask for your new spouse’s income information to be included in your payment calculation. If you did not have access to your spouse’s last tax return since you weren’t married yet, say “no” to that question and the application will continue to be based off of just your own income (your last tax return as a single filer) for the next recertification period.
You may get a response on the application like this if you said you did have access to your spouse’s information:
“Based on your response to this question, your spouse will be required to co-sign your application and provide documentation of his or her income. This income documentation will only be used by your loan servicer while you are being considered for or are repaying your loans under the REPAYE plan.” This response is normal. Your spouse will have to sign off on the application by creating an FSA account if they don’t have one already and they might need to provide income information if required by your plan (REPAYE).
What if both my spouse and I have federal student loan debt?
If you both have federal student loan debt, your payment will affect each other still. Filing taxes jointly will look at your debt load as household debt and a household monthly payment calculation. It will proportionally split that household payment between you two, meaning the spouse with more debt will have the larger payment.
If you both have federal student loan debt and file taxes separately, it will continue to keep your payments off of your own income and not look at your debt as a household.
What if my last filed tax return was filed jointly with my spouse?
Your payment will be based off of that joint AGI even if you want to exclude your spouse’s income, unless you are separated from your spouse and unable to access their income information.
You can submit alternative documentation if your income has decreased since the last tax return by answering the question, “Has your income significantly decreased since you filed your last federal income tax return? For example, have you lost your job or experienced a drop in income?” It will still require alternative documentation from your spouse, however.
If you don’t want your spouse’s income factored into your payment, you will have to file taxes separately on your next tax filing.
How long does a payment based off of this recertification stay the same?
Your payment based off of your recertification stays the same for 12 months. You will be notified by your servicer to submit recertification again a month or two out from your recertification deadline. Completing the annual recertification early does not change your payment early, and your new payment won’t apply until your previous payment schedule ends.
What happens if I don’t recertify?
If you don’t recertify, your payment will switch to the Standard 10-Year Plan payment causing your payment to more than likely go up. Your unpaid interest may be capitalized, and if you try to re-enter your IDR plan and are no longer eligible — you no longer have a partial financial hardship — you will have to stay on the Standard plan, switch to one of the longer-term Standard or Graduated plans, or switch to REPAYE.
Recertification certainly adds to the high-maintenance component of federal student loans, but feeling more confident in the questions being asked and what responses trigger follow-up questions can help you stay on top of your IDR plan.
If you’re unsure of the best student loan repayment strategy for you and your family, the team at Student Loan Planner would love to help you. We’ll review your whole student loan situation to help you create the best plan for paying your student loans off or having your debt forgiven.