Like most people with student loan debt, you’re looking to lower for ways on how to lower student loan payments. So far you’ve been told that lowering private student loan payments is hard to do. Thankfully, with federal student loans, the process is straightforward: complete an income-driven repayment plan request form.
In this post, I’ll not only go over how to apply for income-driven repayment (IDR) plan but I’ll also answer some common IDR questions.
Before we start, let’s make sure you have the right IDR request form.
The current Income-Driven Repayment Plan Request form is the one numbered in the upper right-hand corner as OMB NO 1845 0102.
Now that you have the right form, let’s start with the basics:
What is an income-driven repayment plan
The simple answer to what is an income-driven repayment plan is this:
It’s a payment plan for your student loan debt that’s based on your income (duh) and your family size.
Usually, this type of repayment plan is available only for your federal student loans. Private student loans, for the most part, do not offer payment plans based on your income.
How to apply for an income-driven repayment plan
The application process is simple.
You complete the Income-Driven Repayment Plan Request form [OMB NO 1845 0102].
There are three ways you can apply for income-driven repayment plan:
- Online at studentloans.gov;
- Over the phone by calling your servicer; or
- By mail or fax by completing the IDR plan request form.
In this post, we’ll cover how to apply using the paper form.
I prefer to submit a paper copy of the IDR form because it’s easier to keep a copy of it and a record of how you submitted it. That said, submitting an electronic income-driven repayment plan request can be a lot faster.
Why Complete Income-Driven Repayment Plan Request Form
You’ll complete this form because you want a lower monthly payment amount for your student loans. As a refresher, here are the types of income-driven repayment plans offered by the Department of Education:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment for New Loan Borrowers (IBR plan for new borrowers) You’re considered a new borrower under the IBR plan if you have no outstanding balance on a Direct or FFEL loan as of July 1, 2014, or have no outstanding balance on a Direct or FFEL Loan when he or she obtains a new loan on/after July 1, 2014.
- Income-Based Repayment (IBR)
- Income Contingent Repayment (ICR)
Each of these plans takes your income, family size, and state of residence to determine your discretionary income. Your discretionary income is what the Department believes you can afford to repay each month towards your loans.
Related reading. How AGI Affects Student Loans [Tip: Lower AGI, Lower Payments]
While each plan has its pros and cons, they all do the same thing: give you an affordable student loan payment based on your income.
Where can I find an income-driven repayment plan calculator
My favorite income-driven repayment plan calculator is studentloans.gov’s Repayment Estimator.
To get the most out of this tool, either have last year’s income tax return in front of you or use the Repayment Estimator to access your tax return from the IRS. The Estimator will use the adjusted gross income on your tax return to calculate your payment amount.
You can import your loan information into the Repayment Estimator by logging in with your Federal Student Aid ID. You can get an FSA ID here.
Completing the IDR form
The Income-Driven Repayment Plan request form has 12 sections total spread over 10 pages. Of those 12 sections and 10 pages, we’ll concentrate on the first 6 sections and the first 4 pages. The remaining sections and pages provide background information you can read on your own.
To keep things simple, we’ll tackle the 6 sections separately.
Section 1: Borrower Information
This section is straightforward. Here you’re required to provide your personal information.
The only thing clients have asked me about here is whether they can use a PO Box for their mailing address. The form doesn’t say you can’t. And in my experience, I’ve had clients successfully use a PO Box.
Section 2: Repayment Plan or Recertification Request
Things get a little tricky here.
The first question asks why you’re submitting this form. You can use it to do 4 things:
- Enter an income-driven plan;
- Apply for annual recertification;
- Recalculate your payment early; or
- Change which repayment plan you’re in.
When you first apply to enter an income-driven plan, your monthly payment amount will be calculated for a 12 month repayment period. Around month 11, your loan servicer should begin contacting you to ask you to complete your annual recertification. At that point, you’ll mark the second box and move on to section 3.
But what if your income significantly changes in the middle of your repayment period? What do you do then?
You mark the box that says “I am submitting documentation early to have my income-driven payment recalculated immediately.”
The last box is if you want to change income-driven repayment plans (for example, IBR to REPAYE, or ICR to REPAYE) to get a lower payment.
A word about switching plans. Be careful. Two things can happen if you do. First, if you’re paying your Direct Loans under the IBR Plan, you’ll need to make a monthly payment of at least $5 or request a one-month forbearance to change plans.
Second, leaving income-based repayment for another plan may cause your loan balance to increase. If you have unpaid interest when you switch repayment plans, your interest will capitalize. So with that said, be careful when you leave income-based repayment.
The second question asks you to choose which repayment plan you want. In my opinion, if you’re single and all your federal student loans are Direct Loans, you want to choose either the PAYE plan or the REPAYE plan.
If you’re married or you have Federal Family Education Loans (FFEL loans), you may want to choose the IBR plan. FFEL loans don’t qualify for the REPAYE or the PAYE plan but they do qualify for IBR. And that plan will give you a lower monthly payment than would the ICR plan.
Let’s talk if you’re confused about which repayment plan is best for you. As a student loan lawyer, I help people make this choice all the time.
This is self-explanatory.
To find out if you have more than one servicer or loan holder, visit the National Student Loan Data System. That system has all the information about your federal student loans, including if your loans are with more than one servicer.
This is a yes or no question with a twist.
If you answer yes, you have to decide:
- Do you want to start your repayment period right away under your IDR plan? Or
- Do you want to wait for the forbearance or deferment to end.
IMO: wait if you need to save more money before you start your repayment period.
Section 3: Family Size Information
Getting this section right is critical.
Remember, your monthly payment under each of the income-driven repayment plans is determined by your adjusted gross income and family size.
The lower your AGI, the lower your monthly payment. Conversely, the greater your family size, the lower your monthly payment.
With question 5, you get to count any child in your family that you provide more than half of the support for. This means you may be able to count:
- The children that live with you;
- The children that live outside your home;
- Your step-children (whether you’re married to your partner or not); and
- The children you or your partner or pregnant with
Let’s talk real quick about what support means. The prior version of OMB NO 1845-0102 used to provide the definition of support. The definition of support was removed from the current version.
Oh well. To find a definition, we have to turn to the regulations. There, the U.S. Department of Education’s says that support includes:
money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs.34 C.F.R. § 685.209(a)(1)(iv)(B)
The basic point to keep in mind when counting your children is to remember, it’s not about whether you can claim this child on your taxes. The relevant questions are: (a) is this a child; and (b) do you provide more than half the support for that child?
This question is slightly different from the last question. It is all about non-children that live with you that you’re providing more than half the support for. The person doesn’t have to be related to you. And you don’t have to be in a romantic relationship with them. It could be your roommate. Again, the relevant questions are: (a) does the person live with you; and (b) do you provide more than half their support?
Section 4A: Marital Status Information
Here, clients often ask: “how do I know if I’m married but cannot reasonably access my spouse’s income information?”
The answer isn’t clear.
Neither the IDR form nor the applicable law describes what it means to “reasonably access” your spouse’s income information.
The best answer I could find is that “unable to reasonably access” was meant to protect married persons who file their income taxes separately and are estranged from their spouse.
You can read this post to learn more about my attempts to define “married but cannot reasonably access” my spouse’s income information.
Answer this question only if you’re married and still with your spouse. Otherwise, for IDR purposes, you’re considered single and should be skipping down to answer question 11.
For those of you still with your spouse, at question 8, mark whether your spouse has federal student loans. If they do, the good news is that you may be able to get a monthly payment that covers both your loans based on both of your incomes.
Let me explain.
REPAYE plan. Your loan servicer will automatically adjust your payment amount proportionally, based on each spouse’s share of the total loan debt. For example, assume the calculated REPAYE plan amount for you and your spouse based on your combined adjusted gross income is $200. If you owe 60% of the combined loan debt, your payment amount would be $120 and your spouse’s payment amount would be $80.
PAYE plan and IBR plan. Your loan servicer will use your combined eligible student loan debt when determining your eligibility for the PAYE plan or the IBR plan if you filed a joint federal income tax return. From there, your monthly payment would be automatically adjusted proportionally based on each spouse’s share of the total student loan debt.
But if you filed separately, only your eligible student loan debt will be used and there will be no adjustment to your payment amount. And that’s true if your spouse has eligible loans.
ICR plan. You and your spouse must have eligible Direct Loans to repay your loans jointly under the ICR plan. If you choose to do so, your loan servicer will calculate separate ICR plan payments for each of you that is proportionate to your individual share of the combined loan debt.
Only choose the ICR plan if you have Parent Plus Loans or Direct Consolidation Parent Plus Loans. The ICR plan is the worst of all the IDR plans.
Answer this only if your spouse has student loans.
If you filed your last tax return jointly, then, no matter which plan you choose, your spouse’s income will be used to determine your monthly payment amount.
Section 4B: Income information for single loan borrowers and married borrowers treated as single
Let’s stop for a quick recap. Remember, if you’re married, you can be treated as single for IDR purposes if you’re separated from your spouse or you’re unable to reasonably access your spouse’s income documentation.
So if you’re married and have access to your spouse’s tax return or pay stub, then you should skip this section and answer either section 4B or 4C.
The U.S. Department of Education defines a significant change of income by way of example.
It says that a significant change in income includes:
- A loss of employment;
- A drop in income;
- A divorce;
- A marital separation after having filed a tax return jointly; or
- A denial by one spouse to their income information.
So what do you do if your income has increased since you filed your last tax return? Arguably, you can answer that your income has not significantly changed.
Taxable income, for IDR purposes, includes employment income, unemployment income, dividend, and interest income, tips, and alimony. It does not include Supplemental Security Income, child support, or federal or state public assistance (SNAP/Food Stamps).
Section 4C: Income information for married borrowers filing jointly
Let me make this clear. No matter which IDR plan you choose, your spouse’s income will be included in your monthly payment. But if your spouse also has federal student loans, this isn’t a bad thing.
As I mentioned above, you can use your joint federal tax return income information to get one monthly payment that’s broken up proportionally to each of your loans balances.
Questions 13 and 14.
As I said above at question 11, a significant change of income seems to occur only if you’re income has decreased due to job loss or a cut in wages. So if either of your incomes has increased since you filed your last return, you arguably haven’t experienced a significant change in income for IDR purposes.
Questions 15 and 16.
See question 12 above for an explanation of taxable income.
Section 4D: Income information for married borrowers filing separately
For questions 17 and 18 see question 11 above. For questions 19 and 20, see question 12.
Section 5: Instructions for documenting current income
For starters, you should only be at this section if you or your spouse have:
- taxable income; and
- experienced a significant change in income since the last tax return was filed.
There are several options for documenting your income documentation. You can provide:
- A pay stub;
- A letter from your employer listing your gross pay; or
- A letter from you (if you’re self-employed) on how often you get paid or take a draw.
No matter which document you provide, make sure:
- The document is no older than 90 days from the date you sign the IDR form;
- You write on the document how often you get the income (weekly, every other week, twice per month, etc.); and
- The document indicates the name and address of the source of income.
Section 6: Borrower requests, understandings, authorization, and certification
This is the disclosure section of the form. Rather than go over each disclosure (this article is long enough), let’s highlight some important information:
Leaving IBR. If you’re repaying your Direct Loans under the IBR plan and you request to leave the IBR for a different IDR plan, you must make one monthly payment of at least $5 before you enter the new plan. If you decline to make the payment, your loans will be placed on the Standard Repayment plan. Under that plan, your monthly payment will be a lot higher than it is under any IDR plan.
Further reading. The Affect of Capitalized Interest on a Student Loan
Processing forbearance. Your loan holder may grant you a forbearance while processing your application. It may also grant you a forbearance to cover any period of delinquency that exists when you submitted your application.
Automated dialing and text messages. By submitting this form, you’re authorizing the U.S. Department of Education and its agents to contact you using automated dialing or text messages at the phone number you provided.
Finally, the last thing you have to do with this form is sign.
If you’re married and have access to your spouse’s income information, your spouse is asked to sign the form. And that’s apparently true even if you’re applying for the IBR plan and you filed your last return separately.