Are your student loans up for IDR recertification? You Still Have Options While Applications Are Closed

TAKEAWAYS KEY

• The Department of Education responded by closing all applications for income-driven repayment plans (IDRs) after a federal court questioned certain parts of the plans.
• Borrowers already enrolled in the IDR plans need the applications to recertify and could see a significant increase in monthly payments if they can't.
• If borrowers are unable or unwilling to pay higher payments or recertify their status, they can request deferment or forbearance in order to stop payments until the lawsuit has been resolved.

The White House has paused enrollment in income-driven repayment plans (IDR). Borrowers who have already enrolled and need to recertify income are now faced with uncertainty.

In February, a U.S. court of appeals blocked the Saving on a Valuable Education plan (SAVE) and questioned parts of other IDR Plans. As a result of this, the Department of Education shut down applications for all IDR programs. Borrowers currently enrolled in Income Contingent Repayment Plans (ICR), Income Based Repayment Plans (IBR) or Pay As You Earn plans (PAYE), however, are not able to recertify loans.

Borrowers who are on a repayment plan need to update their income information and family size every year in order to confirm their payment amounts. This manual recertification procedure uses the same application.

If you don’t recertify your PAYE plan or ICR, you’ll remain on the same plan. However, your monthly payment may increase to what you would pay under Standard Repayment Plan. IBR is similar to PAYE or ICR for borrowers, but the unpaid interest will also be added to your principal balance.

Even if your IDR plan is not recertified, the higher payments you make should still qualify you for a time-based loan forgiveness.

What If You Can't Afford The Higher Payment?

If borrowers do make the higher payment every month, they will become delinquent on their loan and could eventually default.

Borrowers can avoid this by applying for deferment or forbearance, where payments aren’t due, or temporarily making a smaller payment. Borrowers are only allowed a certain amount of forbearance and interest will continue to accrue when the loan is paused.

"They could switch to a plan that's not based on income," said Betsy Mayotte, president of The Institute of Student Loan Advisors. "Graduated repayment and extended repayment, but those tend not to count toward forgiveness, and they may not lower the payment enough to make it affordable."

It is important to note that

Borrowers enrolled in the SAVE plan are still in administrative-placed forbearance and do not have to worry about monthly payments or recertification.

Borrowers may take out a personal or refinance into a private loan. Mayotte said private loan payments can be more expensive and that borrowers lose federal protections.

"People shouldn't be making any panicked rush decisions based on something that happened today or yesterday or the day before," Mayotte said. "I think all these things, the dust is going to settle at some point."