One of the biggest things that has kept me up at night having advised hundreds of millions in student loan debt is how to answer a simple question. On the Income-Driven Repayment (IDR) Plan Request form, you used to have to answer the following:
“Has your income significantly changed?”
What does that mean? When you’re submitting your IDR Plan Request form, you want to be honest, but you don’t want to pay more than you need to.
How do you submit an IDR form correctly?
Physicians in residency frequently graduate and suddenly go from earning $60,000 to maybe $250,000. Should you show your new pay stubs or use the past year’s tax returns?
If you say “yes, you earn more” but you didn’t need to reveal that, you just paid an extra five-figure amount for no reason.
If you say “no” when you shouldn’t have, then you could be at risk of fines, not getting forgiveness or even criminal penalties.
Thank goodness a major change happened on the form that takes away any doubt.
The new IDR Plan Request form makes re-certifying guilt-free
Here’s what the IDR form now says for the infamous question about your income:
From “Has Your Income Significantly Changed” to “Has Your Income Significantly Decreased”
Unless you’re a student loan nerd, then you might have totally missed the earth-shattering change that happened to this question.
Remember, the IDR form used to ask: “Has your income significantly changed?”
Now the IDR form says: “Has your income significantly decreased since you filed your last federal income tax return?”
FedLoan IDR form submissions will now be much easier
If your loans are serviced by FedLoan Servicing, submitting your income-based recertification used to be a huge pain because of the ambiguity of this question.
But now that it’s clear that you only need to report your income from your last tax return unless that income has since decreased, you’re in the clear to use tax returns to certify in every case if you want to.
Imagine a brain surgeon who made $70,000 in 2018; $250,000 in 2019; and will make $600,000 in 2020 because they became an attending in September 2019.
That doctor could pay on their small income from 2019 to 2020, the half-year attending income from 2020 to 2021, then finally be paying on an attending level income from 2021 to 2022.
Many high-income doctors pursuing Public Service Loan Forgiveness will now be paying based only on their attending income for as few as one or two years.
Submitting lower income on an IDR form
Remember that just because you can use prior year tax returns doesn’t mean you have to.
Borrowers who experience a drop in income might do so for various reasons:
- You went back to school part time.
- Kids entered the picture.
- You decided to buy a practice and have a lot of upfront expenses.
- Your spouse quit their job (IDR plans often include spouse’s income).
- You decide to work remotely.
- Your work offers you a part-time position that you accept.
Since your IDR payments come from what you earn, you have the right to request a recalculation in your payments at literally any time when your income falls.
Submitting for a new payment using an IDR form is a smart strategy for borrowers who are looking to reduce their hours for family reasons or need low payments to take an entrepreneurial risk.
Can you file for tax extensions for IDR form purposes?
A remaining gray area — and something I’m debating right now with lawyers and student loan experts — is if the government rules allow you to file an extension on your taxes in order to get a lower IDR payment.
You can delay your taxes at no cost. In 2019, the extended filing deadline is October 15.
Imagine that high-earning physician example. You could get into a situation where strategically delaying your tax filing might allow you to use your 2017 returns instead of 2018.
One student loan attorney I spoke with didn’t think this was a good strategy that would hold up to scrutiny. Another expert thought it would.
I’ve certainly seen borrowers decide to use that approach before, but we’re still too early for Student Loan Planner to feel comfortable recommending it.
Since the gray area used to be whether you could use prior-year tax returns, I was super reluctant to recommend tax filing extensions.
But now that the gray area is gone on that issue, thinking about tax filing extensions warrants further consideration.
Need somebody who thinks about the IDR form for you?
We strategize all day about student loan payment options. If you’d rather have experts who have made thousands of plans create a custom strategy for you, just let us know or check out the “Hire Us” part of the site menu.
What do you think about the new IDR form question? Are you as excited as I am? Let me know what you think below.