Many student loan borrowers see their monthly student loan payment increase and assume that their loan servicer or lender is up to something shady.
It isn’t a surprise that borrowers reach this conclusion. The Department of Education has found that servicers were guilty of steering borrowers into forbearances when IDR plans would have been a better option. The Consumer Financial Protection Bureau has identified numerous instances of servicers providing false, misleading, or incomplete information to borrowers.
However, in the case of IDR payments unexpectedly going up, the explanation is usually far less nefarious.
IDR Payment Changes and Certification Deadlines
In many cases, a missed deadline is the most likely explanation for a jump in IDR payments.
IDR income certifications are good for 12 months. After that, the borrower must recertify their income. If the borrower doesn’t recertify on time, the IDR plan ends, and the borrower gets placed on the standard repayment plan. This often means a huge jump in monthly payments.
Sometimes, the borrower submitted their certification on time, but the servicer hasn’t yet processed the documents. When this happens, borrowers can request an administrative forbearance.
IDR Payments After Getting Married
Marriage considerably influences IDR payments — even if both borrowers have federal student loans and sign up for an IDR plan.
The short version of the rule is that your spouse’s income can often get used in the calculations of monthly payments. In most cases, an increase in monthly payments is nearly a certainty.
The good news is that there are options for couples to minimize the impact of their marriage on student loan payments.
Income Changes and IDR Payments
Now for the most obvious explanation: if you earn more money each year, your IDR payments will increase.
However, it’s worth noting that temporary increases usually won’t impact your student loan payments. For example, a one-time bonus or limited overtime usually won’t impact payments.
Retirement Account Maneauvers
Pulling money out of a 401(k) or similar retirement account can impact IDR payments. The IRS taxes these withdrawals as income, and if the IRS treats something as income, loan servicers will also.
However, this rule doesn’t apply to all retirement account withdrawals. The tax treatment of the retirement account will dictate whether or not it raises IDR payments.
Borrowers who have to take a one-time 401(k) withdrawal can use an alternative documentation of income to minimize the impact on their IDR bill.
Shady Loan Servicer Behavior and IDR Payment Changes
Many borrowers suspect their lender is up to something shady when they see their payments increase.
As noted earlier, in most cases, there is a logical explanation. However, it’s conceivable that a lender mistake could explain the increase.
Even in these circumstances, the explanation is more likely attributable to a mistake rather than malicious intent. As borrowers, understanding this distinction can often help resolve issues.
Increasing Student Loan Interest Rates
Interest rate changes shouldn’t impact your monthly IDR plan. However, many federal borrowers enroll in balance-based plans like graduated or extended repayment.
An interest rate increase may explain the higher monthly bill if you have an older federal loan.
Likewise, an interest rate increase is almost certainly the most likely explanation for a higher monthly bill if you have a private loan.
For both federal and private loan borrowers, there are options to convert the variable-rate loan into a fixed-rate loan.
Tips to Qualify for Lower IDR Payments
There are three basic strategies for lowering IDR payments:
