Enrolling in an Income Based Repayment Plan for your student loans is a fairly easy task. Not only is IBR a great way to lower your monthly payments, but the program also offers benefits such as student loan forgiveness.
However, be advised that signing up for IBR is a little like updating your car registration when you move… It can be a little tedious or frustrating, the process varies slightly from person to person, and it probably should be a little easier than what it actually is. Even though the program isn’t perfect, it is a necessity for many, and it is something that anyone can do.
Step #1: Determine who services all of your federal loans.
Go to the National Student Loan Data System to pull up a list of all of your federal loans. This page will show all of the companies servicing your loans, and how much you owe. You will need all of this information in order to determine your monthly income based payment to each company (Don’t worry, you won’t be doing any complicated math on this one).
Step #2: Decide if Student Loan Consolidation is for you.
If you are going to consolidate your student loans, you can enroll in Income Based Repayment at the same time, so there really is no point in signing up until your consolidation is processed.
We have previously discussed consolidation in more detail, and it is important to fully understand the pros and cons of consolidation before you make this decision. If you decide to consolidate, just go to the federal student loan consolidation website, and you can also enroll in IBR when you file that paperwork.
Step #3: Make sure you want to sign up for IBR.
IBR is one of several income-driven repayment plans.
We won’t jump into the details on each individual plan, but borrowers who are looking for the lowest possible monthly payments will want to investigate Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE).
Things like marital status, loan type, total balance, and forgiveness planning can affect which repayment plan is the best option. Be sure to understand the options and strategy that goes into picking the best federal repayment plan.
Step #4: Fill out the application.
In the past, this was one step that would vary depending upon a borrower’s loan servicer. Some lenders made the process very easy and allowed borrowers to sign up on an electronic form. Others required physical documents and snail mail. The good news for borrowers is that the Department of Education has made a single application form that can be completed online.
The Department of Education estimates that completing the application takes most borrowers less than 10 minutes to complete.
Step #5: Document your income.
As part of the form submission, you will be asked to document your income.
The easiest way to do this is to follow the steps to link up with the IRS so that the Department of Education can access your AGI from your most recent tax return.
If your tax return does not adequately represent your income, you can submit two recent pay stubs or proof of unemployment.
Step #6: Wait patiently, but keep on your lenders.
Processing IBR applications can take over 3 months. The good news is that wait times are usually much shorter.
However, the process is not without flaws, and as a result it is critical you continue to check in to verify that your lender(s) has the proper documents and that things are going according to schedule.
Step #7: Be sure to re-apply each year.
The IBR payments only last for one year. Each year you must again document your income and re-apply for IBR. The re-application is fairly easy, but you don’t want to wait until the last second. As this can also take months to review, plan on applying approximately 3 months before your IBR plan is set to expire. You don’t want your payments to go up and not be able to afford them.
Missing income-certifications can be really expensive for certain borrowers, not only do monthly payments increase, but because missing the income-verification deadline can also increase your student loan balance.