As we near the end of the CARES Act suspension, student loan borrowers need to understand their obligations their loan repayment obligations. One issue that many borrowers are facing is the recertification of their IDR plans.
Student loan borrowers under an Income-Driven Repayment (IDR) plan are required to submit their income and family size information annually to recalculate their payment amount.
If a borrower fails to recertify, their payment will increase to the standard 10-year term. Also, interest accumulated will capitalize (a fancy word for getting added to their principal).
The capitalization of interest causes borrowers to have higher interest charges in the future than they had before the capitalization. It's very important for borrowers to recertify on time to avoid their loan balance from negative amortization.
For most student loan borrowers, payments have been suspended since March. This payment suspension, unless further extended runs through Sept. 30. For many student loan borrowers, their recertification periods have or will occur during the payment suspension.
The Department of Education, realizing that many borrowers would not recognize their need to recertify during the suspension period has provided the following guidance to borrowers and Federal Loan servicers:
You will not have to recertify your income before Sept. 30, 2020, regardless of whether your recertification date would have happened before Sept. 30, 2020. As part of the administrative forbearance, your recertification date has been pushed out six months from your original recertification date. You will be notified of your new recertification date before it is time to recertify.
Federal Systems Not Equipped For Changes
Like many of the administrative changes directed by the CARES act, the federal loan servicers and their automated systems are not equipped to implement the changes promptly.
Borrowers are still receiving letters indicating that they need to recertify even if their recertification is scheduled before Sept. 30. In fact, multiple calls to the loan counselors and IDR specialists at Fed Loans, Nelnet, Navient, and Great Lakes have found that customer service agents are unaware of the suspension of recertification.
Furthermore, the IDR anniversary dates reported on borrower's IDR files have continued to have dates between March and Sept. 30.
Neither the servicer nor The Department of Education has changed any dates on record.
More Ambiguity on IDR Anniversary Date
What makes the already murky waters even muddier is the ambiguity between IDR anniversary dates and recertification dates. The IDR anniversary date is when the IDR pans' bill cycle changes from one years payment to the next. However, for a servicer to process the application and have time to calculate a new payment, they will provide a borrower with a recertification date that is 30 days before the billing cycle. For many borrowers that graduated in May, they have IDR anniversary dates in late October, meaning they must recertify before the Sept. 30 period.
Anniversary Date Confusion Created By Servicer Agents
However, the representatives at the servicers we have spoken who were aware of the suspension indicated that that IDR anniversary date is the date they are using to determine if a borrower has their recertification pushed out. This is a significant issue because most borrowers know their due date. They see their recertification date on their recertification letter, but do not know when their IDR anniversary date is.
When more than ½ of the call center representatives don't realize there is a recertification suspension, it's doubtful that any borrower is getting accurate advice about whether they need to recertify. The result is the same as it always is; borrowers are left to navigate a broken system with cloudy rules, limited oversight, and unhelpful servicers.
Unfortunately, we do not see the end of the CARES act deviating from the norm. Unless borrowers go out of their way to protect themselves, they will bear the costs of the broken system.
Hint: Borrowers can find their IDR recertification date by logging in at www.studentaid.gov, next to their name selecting the carrot (only can be performed on a desktop), choosing loan data, then downloading a .txt file by selecting the link "download my data file," the reading through the lines of data and finding the line that says IDR anniversary date: XX/XX/XXXX
Good luck, you may need it!
- Borrowers who need help can find a qualified CSLP here
- Financial Professionals: Learn more about the CSLP Program here