Once federal student loan payments restart, borrowers on Income-Driven Repayment plans like IBR and PAYE will have plenty of time before they need to recertify their income.
This policy is great news for the borrowers that want to avoid the chaos of dealing with servicers immediately after the restart.
The flexibility with the certification timeline also presents some opportunities for borrowers to lower their monthly payments.
The Default Rule: Automatically resume where you left off
The Department of Education is treating the payment pause quite literally.
If you were on an IDR plan in March of 2020 when the payment pause started, your monthly payment would resume at the same amount once the payment pause ends.
For many borrowers, this means IDR payments in 2022 or 2023 may be based upon your income from as far back as 2019.
If your income has increased over the past few years, the repayment restart will be gradual. You may have nearly a year of lower payments based upon a smaller paycheck.
Sherpa Tip: If your current income is lower than what you earned in 2019, you can always recertify earlier.
When repayment resumes, borrowers essentially have the option of choosing their old payments or new payments based on their current income.
The Department of Education policy allows borrowers to make a minimum of 12 payments based on their last certification, even if it was before the pandemic. In other words, if you had seven months left on your previous IDR certification, you will have seven months before you have to certify again after the restart.
However, there is a notable exception to the picking up where you left off rule…
The Earliest Recertification Deadline Could Stretch into 2024
To help borrowers that might have only had a month or two before a recertification deadline, the Department of Education is instructing servicers that the earliest possible income-certification deadline will be six months after the payment and interest pause ends.
This policy should provide borrowers plenty of time to adjust to repayment without fear of missing an IDR deadline and having payments jump.
Another unique feature of the repayment restart is that borrowers will have the option to self-certify their income.
Typically, borrowers report their income using either their most recent tax return or two recent paychecks. Self-reporting is a brand new but limited option.
The self-certification policy helps borrowers who might otherwise struggle to document their income properly. It also provides a break to overwhelmed servicers. By allowing borrowers to self-report income, servicers don’t have to spend time verifying income documents.
If you want to self-certify your income, you can use the standard IDR recertification. In step 2, when asked about documenting income, select “I’ll report my own income information.”
Repayment Plan Selection
By the time the restart actually happens, you may wish to switch to a different repayment plan. Changing income, marital status, and a number of other factors can influence which IDR plan is best.
Additionally, the newly announced plan may be the best option for your loans.
It’s a good idea to revisit your IDR plan selection if it has been many years since you last decided.
Sherpa Tip: When filling out the IDR plan selection form, don’t select the option for the plan with the lowest monthly payments. In many cases, the monthly bill could be identical for multiple IDR plans, but all plans are not created equal. For example, PAYE and REPAYE may require the same monthly payment, but the REPAYE subsidy makes it the better choice for some.
When you fill out the form, identify which plan is best for your situation and select that specific plan.
Repayment Restart Income Certification Strategy
Borrowers essentially will have three different incomes to choose from for their IDR payment calculations.
2019ish Income – If your income has gone up post-pandemic, simply do nothing. When repayment restarts, your monthly bill will be the same as it was when the pause started.
2021 Income – If your 2021 tax return was a down year, now is a great time to recertify your income. When the restart happens, it will be based on this income.
2022 Income – If your current income is the lowest of the three, you can self-report your present income. Alternatively, you can wait until you file your 2022 taxes, and use that tax return for certification.
In other words, the deadline to recertify and the best time to recertify could be different.