For people overburdened with student loan debt, income-driven repayment (IDR) plans can be a huge help.
IDR programs can dramatically reduce your monthly bill, freeing up more of your income for other expenses.
However, getting into an IDR plan can be confusing and overwhelming.
We’ve linked a helpful calculator for most of them so you can use to figure out which plan is right for you. But remember, each plan has its own eligibility requirements, payment formula, and repayment term. That’s why completing the income-driven repayment plan request on your own can be complex.
This year, the U.S. Department of Education released a new IDR form that it designed to simplify the process.
What is an IDR?
Under an IDR plan, loan servicers cap your federal student loan payments at a percentage of your income. They also extend your repayment term from the standard ten years to 20 or 25.
That means your monthly payment can be substantially reduced. In fact, depending on your income and family size, your monthly payment may be as low as zero.
Then, after 20 or 25 years of repayment depending on which plan you are on, the loan servicer will forgive the remaining balance.
Therefore, if you have a small salary or are struggling to find well-paying work, an IDR plan can be a lifeline, until your financial circumstances improve.
The old income-driven repayment plan request
If you’ve submitted an IDR plan application in the past, you might remember that process as incredibly intensive and time-consuming.
The previous form was 12 pages long, with nine sections, 27 questions, and detailed requirements for documenting your income.
It was also very confusing. Depending on how you answered, the form instructed you to skip some questions, but fill out others. And instead of one easy question about the size of your family, there were three.
Additionally, the form asked you to enter your spouse’s income information, regardless of which repayment plan you were applying for. Even if you filed taxes separately.
Usually, federal loan servicers shouldn’t have been considering spousal income at all. And, there is the very fine print that says spousal income is not necessary for certain plans. However, the form buries that disclaimer at the bottom.
Overall, the old form left a lot of room for error both on the side of the applicant and the loan servicer.
And complications often led to application processing delays. Many people spent months in limbo wondering if the servicer accepted them into an IDR plan.
The new form
The Internal Revenue Service (IRS) and the federal government have streamlined the new IDR form. It’s down to just 20 questions and ten pages.
The government also presents the information in a simpler manner. They’ve cut down on questions about income and family size, but still ask about spousal income. Regardless of what plan you are considering.
While the form is a step in the right direction to help cut down on processing times, there’s still a long way to go. Especially when it comes to maximizing IDR plans and their benefits to borrowers.
Proposals call for reform
The report highlighted substantial issues that delayed the government from approving IDR plan requests, causing many people to re-default on their loans.
Essentially, the government had rejected some borrowers for incomplete applications, even though they were eligible. And, the government didn’t even give borrowers the opportunity to rectify the mistakes.
The good new is the CFPB Ombudsman has made a series of recommendations to reform the current processes. Including proactively communicating with borrowers at risk of default.
More changes on the way
In October, a coalition of 20 groups, including unions, consumer groups, and student loan companies, wrote to federal agencies calling for significant reform around the processing of IDR requests.
The coalition called for automatic re-enrollment for borrowers each year. That’s a change from the government’s current policy where individuals reapply annually.
In a written statement, Maggie Thompson, executive director of Generation Progress, spoke about the need for program reforms. She said she hears from borrowers that the government hits them with fees because of failing to re-certify for IDR plans.
“This is such an easy fix for the departments and the IRS to undertake, and they don’t even need Congress to pass any new laws,” says Thompson. “It would benefit both borrowers and servicers and save the government needless paperwork.”
Completing the income-driven repayment request form
If you are struggling to keep up with your student loan payments, an IDR plan can help you manage your debt. It’s a good program, despite some of its issues listed above.
Deciding whether an IDR is for you is dependent on a range of factors. Take some time to consider your income potential, expenses, and if you could potentially qualify for loan forgiveness.
If you decide that an IDR plan is right for you but feel overwhelmed by the income-driven repayment plan request process, we can help you apply for free here.
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