By Lisa Rowan, Lifehacker
Switching your student loan repayment plan to one of the four income-driven plans offered by the federal government can do wonders for your finances. These programs typically lengthen the amount of time you spend paying down your loan balance. But in exchange, the ability to peg your monthly payment to your income level can help you boost your financial stability and keep you from feeling completely overwhelmed by your loan balance.
But once you sign up for an income-based plan that works for you, you’re actually not done. Mark your calendar, because you have to recertify your income and family size each and every year that you’re on that plan.
The deadline depends on your student loan servicer, but you can expect the first reminder to arrive about three months before the deadline.
To recertify, you must log into your account at studentaid.gov to complete a brief form. You’ll supply information how many children are in your household, your marital status, and what your income was on your previous taxes. You’ll link to the IRS to retrieve your federal tax data.
You can actually run through a demo version of the recertification process, if you’ve never done it before and want to get comfortable with the system before doing it for real.
If your income has gone down significantly since you filed your last tax return, you’ll need to document your taxable income. This information has to be sent directly to your loan servicer. Once you finish the recertification process at the Student Aid site, you’ll get a pre-filled application to send with your documentation. The date on any documentation of income that you provide, whether it be a pay stub or a letter from your employer, must be no more than 90 days old.
What happens if you miss the deadline to recertify? Well, that’s why this post exists. Because it’s not pretty. For every income-driven plan except for REPAYE, failing to recertify will switch you back to a standard 10-year repayment plan. REPAYE will kick you into an “alternative repayment plan” for either 10 years or what’s left of your current REPAYE term.
On top of that, your interest will capitalize: it gets added to the principal of the loan, so you end up paying interest on your interest. That can dramatically increase the amount you pay over the course of your loan payment plan.
But wait, there’s more! If you’re signed up to autopay your federal student loan, the new higher payment amount could get withdrawn from your account. And that could put you into overdraft territory, if you’re not careful.
You can re-enroll if you miss your recertification deadline, but you’ll have a gap in your payment plan where you’ll be on the hook for standard monthly payments, even if it means that autopayment just wiped out your checking account.
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