The Importance of Reapplying for Your Income Based Repayment Plan
As the cost to attend college continues its steep climb, the financial burden newly minted college graduates face is undeniably heavy. In fact, according to a recent article by TIME, while graduates in 1993-1994 had to contend with $10,000 worth of debt to receive a bachelor’s degree, 2016 graduates will have to pay back an average of $35,000 in loans. That’s triple the debt in just two decades.
For those with federal student loans, one of the greatest ways to lessen the massive impact this debt can have on their budget post-graduation is to sign up for an income-based repayment plan. These plans can substantially lower the monthly payments on loans by matching them to the income of the borrower, ensuring they have enough to stay current while still meeting other financial obligations.
So why are so many borrowers in these helpful programs falling out or getting kicked out when they clearly need the help?
It’s simple – they are failing to recertify their earnings each year.
The recertification requirement and the consequences of not doing so
Regardless of the type of income-based repayment plan borrowers are enrolled in, they are required to resubmit income documentation and information about family size and state of residence annually in order to ensure eligibility.
The date in which these documents must be submitted depends on when the borrower entered the program, but notices are sent out between 60-90 of the due date.
Failing to submit this documentation, or submitting the documentation past the due date can have dire consequences for borrowers – namely a jump in monthly payments to what would have been owed under the standard 10-year repayment plan.
The Consumer Finance Bureau shares one horror story on their website in which a borrower’s monthly payment increased from $200 per month to an astounding $1,400 per month – far too much for the average financial situation to handle.
Other consequences include a change in the date borrowers become eligible to receive student loan forgiveness and a reduction in the amount of interest the government will excuse or pay back on their behalf.
All of these can quickly turn a borrower with a stable financial situation into one plummeting into default with no ability to escape.
How big is the problem?
Statistics from the Department of Education point out that this issue is more widespread than most are even aware of.
Of the 1,227,248 borrows who were required to recertify their income between November 2013 and October 2014, 56.17% didn’t recertify on time. Of that percentage, 17.68% were forced to go into a hardship related forbearance or deferment on their loans.
In addition, the percentage of borrowers who were able to become recertified one month after missing the deadline was only 7.98%, followed by 5.05% after two months, 2.86% after three months, and 1.77% after four months. This could mean thousands in higher costs over that short time span, not to mention all of the other borrowers that don’t make it back in to their income-based repayment plan.
Streamlining the process and fixing the problem
One large reason why borrowers don’t recertify their income by the required date and subsequently get dropped from these helpful programs is a simple case of forgetfulness.
With the wide array of financial obligations the average consumer finds themselves juggling every month or every year, reapplying for these income-based repayment plans is easy to push to the back burner. But clearly the consequences of doing so can make a borrower’s entire financial house crumble at a time when they really can’t handle it.
This is where a service like ours can bridge the gap – by taking over this often forgotten but vitally important financial task and ensuring users stay enrolled in the plan that will help them build a solid financial foundation.