Income-Driven Repayment (IDR) is a federal student loan that modifies monthly payments following the borrower’s income and family size. IDR aims to make repayment manageable by aligning with the borrower’s financial capacity. Income Driven Repayment plans include lower monthly payments, loan forgiveness after a certain period, and annual income verification. Qualifying payments last up to 20 or 25 years, depending on the plan and the borrower’s loan type.
IDR plans keep payments from becoming unaffordable, which is advantageous for borrowers with high loan balances relative to their income. The Income Driven Repayment Plan applies to federal student loans, not private ones. There are four types of IDR plans: Income-Based Repayment (IBR), Pay-As-You-Earn (PAYE), Income-Contingent Repayment (ICR), and Saving on a Valuable Education, or SAVE plan student loans.
Income-Driven Repayment (IDR) plans require borrowers to update income or family size information with the loan servicer to have their monthly payments recalculated. Borrowers must recertify for IDR plans annually and submit updated information and documentation. Loan forgiveness student loans under IDR plans result in tax liability in the year the loan is forgiven.
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What is Income-Driven Repayment (IDR)?
Income-Driven Repayment (IDR) is a federal student loan repayment program that adjusts monthly fees based on the borrower’s revenue and family size. The purpose of IDR is to make student loan repayment manageable by aligning with the borrower’s financial capacity. Key features of IDR plans include lower monthly payments, loan forgiveness after a certain period, and annual income verification. There are four types of IDR plans, including the Income-Based Repayment (IBR) Plan, Pay As You Earn (PAYE) Repayment Plan, Income-Contingent Repayment (ICR) Plan, and the Saving on a Valuable Education (SAVE) Plan.
Qualifying payments under IDR plans last up to 20 or 25 years, depending on the specific plan and the borrower’s loan type. For example, the SAVE Plan student loans offer forgiveness after 20 years for undergraduate loans and 25 years for graduate loans. Borrowers with initial loan balances of $12,000 or less are eligible for forgiveness after 10 years of repayment.
IDR plans benefit borrowers with high loan balances compared to their income, as the plans prevent payments from becoming unaffordable. The exact amount for student loan repayment paid each month is a percentage of the borrower’s discretionary income, which is household income minus a percentage above the Federal Poverty Guidelines for family size and state.
IDR plans differ from traditional repayment plans, such as the Standard Repayment Plan, which is automatically enrolled if the borrower does not choose a plan. Higher monthly payments mean the borrower pays more toward the balance and pays off the loan quickly. IDR plans apply to federal student loans, not private student loans.
How does Income-Driven Repayment Work?
Income-Driven Repayment works by setting monthly student loan payments based on a percentage of the borrower’s discretionary income, adjusting for family size. Income-Driven Repayment (IDR) offers loan forgiveness student loans after 20 or 25 years of qualifying payments.
IDR plans are designed to make student loan payments manageable based on the borrower’s income and family size. The process of IDR involves calculating the monthly payment as a percentage of discretionary income. Discretionary income is the difference between the adjusted gross income and 150% of the federal poverty guideline for the family’s size and location. There are four main IDR plans, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR).
Payments under IDR plans are set at 10%, 15%, or 20% of the borrower’s discretionary income, depending on the plan. For example, the PAYE and REPAYE plans cap payments at 10% of discretionary income, while the IBR plan caps payments at 10% or 15%, depending on when the loan was taken out. The ICR plan sets payments at 20% of discretionary income or a fixed amount over 12 years, whichever is less.
Payments are adjusted annually based on the borrower’s income and changes in family size. The remaining loan balance is forgiven after 20 or 25 years of qualifying payments. A student loan works by providing financial assistance to cover educational expenses, which the student or their family borrows. The length of the forgiveness term varies based on the IDR plan and whether the loans were taken out for graduate or undergraduate studies.
What are the Different Types of Income-Driven Repayment Plans?
The different types of income-driven repayment plans are listed below.
- Saving on a Valuable Education (SAVE) Plan: The Saving on a Valuable Education (SAVE) Plan is an income-driven repayment plan for student loan debtors, reducing monthly fees to 5% to 10% of discretionary income. Undergraduate loans include payments decreased from 10% to 5% of income above 225% of the poverty line, while graduate loans pay a weighted average. The plan offers loan forgiveness after 20 years for undergraduate and 25 years for graduate loans.
- Income-Based Repayment (IBR) Plan: The Income-Based Repayment (IBR) Plan is a federal student loan repayment program designed to create monthly payments manageable for borrowers with high debt. It caps payments at 10% or 15% of the borrower’s discretionary income, depending on when the loans were first disbursed. The plan ensures payments never exceed the 10-year repayment plan and forgives any remaining loan balance after 20 or 25 years of qualifying payments.
- Income-Contingent Repayment (ICR) Plan: The Income-Contingent Repayment (ICR) Plan is a federal student loan repayment option that adjusts monthly payments based on the borrower’s income and family size. It offers loan forgiveness for remaining balances after 25 years of qualifying payments, reducing the borrower’s discretionary income or the amount they pay on a fixed repayment plan.
- Pay As You Earn (PAYE) Plan: The Pay As You Earn (PAYE) Plan caps payments at 10% of the borrower’s discretionary income, ensuring the borrower never exceeds the 10-year repayment plan. The remaining loan sum is forgiven after 20 years of qualifying payments.
What is the Difference Between IDR and IBR?
The difference between IDR and IBR is that IDR refers to the category of repayment plans, while IBR is one specific plan within that category. IDR is a broad category that includes income-based repayment plans designed to make student loan payments manageable based on the borrower’s income and family size. Income Based Repayment is an IDR plan that calculates payments as a percentage of discretionary income and gives forgiveness after 20 or 25 years.
IDR plans, including IBR, benefit borrowers struggling to make monthly student loan payments. The plans adjust the monthly payment amount based on the borrower’s discretionary income, making it more affordable. The plans prevent default and financial hardship by offering a more manageable repayment structure. The Income-Based Repayment Plan caps monthly payments at 10% to 15% of discretionary income and offers loan forgiveness after 20 or 25 years of qualifying payments.
IDR and IBR have different specific conditions and circumstances, but the plans seek to make student loan repayment affordable. IDR includes plans such as Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR), each with its unique features. Income-Based Repayment Plan is tailored explicitly to cap payments based on income and offers forgiveness after a set period. The similarity lies in the plans’ shared goal of reducing the financial burden on borrowers by linking payments to income levels.
What is the Difference Between IDR and PAYE?
The difference between IDR and PAYE is that IDR is a collection of repayment schemes that base monthly payments on income, while PAYE restricts payments to 10% of discretionary income. IDR plans are a group of federal student loan repayment plans that adjust monthly payments based on the borrower’s income and family size. IDR plans include Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Income-Sensitive Repayment (ISR). PAYE is an IDR plan that caps monthly payments at 10% of discretionary income and offers loan forgiveness after 20 years of qualifying payments.
IDR Plans, which adjust student loan payments based on income and family size, help struggling borrowers. The Pay as You Earn Plan speeds loan forgiveness for new and low-income borrowers and benefits people with shifting wages. The program’s goals are to reduce payback costs and avoid default.
PAYE is available exclusively to newer borrowers who took out loans after October 1, 2007, and received a disbursement on or after October 1, 2011. It has stricter eligibility requirements than some other IDR plans. Similarity lies in income-based payments, loan forgiveness terms, annual recalculation, and interest subsidies. PAYE is available solely to newer borrowers, while other IDR plans have broader eligibility criteria.
What is the Difference Between IDR and REPAYE?
The difference between IDR and REPAYE is that IDR is a collection of income-based repayment arrangements. REPAYE is an IDR plan that caps payments at 10% of discretionary income but does not have a payment cap. IDR Plans benefit borrowers with high debt-to-income ratios. REPAYE is an IDR plan that offers distinct forgiveness deadlines for graduate and undergraduate loans. It benefits borrowers holding the two kinds of debt. Debtors with lower incomes than their debts benefit from REPAYE since the plan offers a structured approach to managing payments and obtaining debt forgiveness.
REPAYE is an Income-Driven Repayment (IDR) plan that offers loan forgiveness after 20 years for undergraduate and 25 years for graduate loans. The Revised Pay as You Earn Plan is available for every federal student loan borrower compared to PAYE and IBR, which have eligibility limits depending on loan disbursement date. REPAYE and other IDR plans alter monthly payments depending on income and family size and offer loan forgiveness after qualifying payments.
What is the Difference Between IDR and ICR?
The difference between IDR and ICR is that IDR repayment plans base monthly payments on income. ICR caps payments at 20% of discretionary income, or the amount borrowers pay on a 12-year fixed plan, with forgiveness after 25 years. IDR plans adjust monthly payments based on the borrower’s income and family size.
IDR Plans are beneficial for borrowers with high debt-to-income ratios or older loans. ICR offers a flexible repayment option, adjusting payments based on income, making it easier to manage payments over time. The plans suit borrowers with varying incomes or financial difficulties, ensuring loan payments are proportional to the financial situation. ICR is beneficial for borrowers with large loan balances or fluctuating incomes.
ICR and other IDR plans calculate payments and eligibility differently. ICR calculates payments at 20% of discretionary income or a 12-year fixed payment amount, while other IDR plans cap payments at 10%. Income-Contingent Repayment Plan forgives loans after 25 years of qualified payments, while other IDR programs forgive after 20–25 years. IDR and ICR plans lower student loan payments by adjusting payments based on income and family size.
Who is Eligible for Income-Driven Repayment Plans?
Borrowers with federal student loans who have a high debt-to-income ratio and meet specific plan requirements based on income, family size, and loan type are eligible for Income-Driven Repayment (IDR) plans. Borrowers must have federal student loans, such as Direct PLUS, Direct Unsubsidized, Direct Subsidized, and Direct Consolidation Loans, to be eligible. Borrowers must present evidence of income and renew the IDR plan annually.
IDR plans do not cover private loans.
Each IDR plan has qualifying requirements. For example, REPAYE is broadly accessible, whereas PAYE is limited to borrowers who took out their first loan after October 1, 2007, and who get a disbursement on or after October 1, 2011. IBR and ICR have separate eligibility criteria, with IBR having different terms depending on when the loans were taken out and ICR being available for every Direct Loan borrower. The variations ensure that each IDR plan caters to varied borrower demands, providing flexibility based on loan requirements.
How are Monthly Payments Calculated Under Income-Driven Repayment Plans?
Monthly payments under Income-Driven Repayment plans are calculated based on a percentage of the borrower’s discretionary income. Discretionary income is the income that exceeds a specified percentage of the poverty guideline for the borrower’s family size. The calculation is done by subtracting a specified percentage of the federal poverty guideline for the borrower’s family size from the total annual income.
The Income-Based Repayment (IBR) plan sets payments at 10% or 15% of discretionary income, depending on when the borrower took out the loans. The Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) plans use a similar approach, with payments capped at 10% of discretionary income. The calculated amount is then divided by 12 to determine the monthly payment.
The IDR plans require annual income recertification to adjust payments as income changes. The method ensures that payments are proportional to the borrower’s ability to pay, making payments manageable by extending the repayment period and increasing the total amount paid over the life of the loan. The other factors influencing the calculation include the borrower’s family size and income, which must be recertified annually.
What Steps are Involved in Applying for an Income-Driven Repayment Plan?
The six steps in applying for an Income-Driven Repayment Plan are listed in the instructions below.
- Visit the Federal Student Aid website. Go to the Federal Student Aid website to apply for an income-driven repayment (IDR) plan. Borrowers must access their accounts and log in using their FSA ID.
- Fill out the application. Give the details regarding the federal loans and other financial data, such as bank statements, tax returns, or other proof of income documentation. Complete the application and ensure that the needed fields are filled out accurately.
- Choose the IDR plan. Select the Income-Driven Repayment (IDR) plan based on how well it suits the borrower’s financial situation. Examine the offered plans, weigh the pros and cons of each, and decide which provides the most affordable monthly payments. The decision helps guarantee that the debtor’s payback plan aligns with their financial objectives.
- Enter personal and spousal information. Input the borrower’s and spouse’s data, which includes name, residence, income, and, if relevant, the spouse’s income. Accurate information is needed to determine the borrower’s eligibility and calculate the monthly payment amount under the IDR plan.
- Enter family size. The family size must be entered when applying an income-driven repayment plan. The family size helps determine the monthly payment amount, which means the larger the family, the lower the monthly payment is.
- Apply. Review all the information and apply. The borrower receives a confirmation and further instructions on the next steps after submission.
How do Income-Driven Repayment Plans Benefit Borrowers?
Income-Driven Repayment (IDR) plans benefit borrowers by reducing monthly payments based on income and family size and offering loan forgiveness after a set period of qualifying payments. IDR plans offer borrowers reduced monthly payments based on discretionary income and family size. The plans cap payments at 10% to 20%, making the program manageable for borrowers with lower incomes or high debt-to-income ratios. For example, payments for undergraduate loans under the Savings on a Valuable Education (SAVE) Plan have been as low as 10% of discretionary income.
IDR plans offer benefits to borrowers, including affordability of monthly payments, loan forgiveness, and the possibility of Public Service Loan Forgiveness (PSLF). IDR plans connect repayment terms with the borrower’s financial reality and long-term financial health. The plans make student loan repayment manageable and less stressful by providing decreased installments and offering forgiveness.
How is Discretionary Income Determined for Income-Driven Repayment Plans?
Discretionary income for Income-Driven Repayment plans is determined by subtracting 150% of the federal poverty guideline for the borrower’s family size from the adjusted gross income. Discretionary income is the portion of a borrower’s income remaining after accounting for necessary living expenses, as defined by federal poverty guidelines. It calculates repayment amounts in Individual Development Loan (IDR) plans to ensure affordable loan payments based on the borrower’s financial situation. Discretionary income is the amount left for spending, investing, or saving on non-essential goods and services.
Discretionary income for Income-Driven Repayment (IDR) arrangements is calculated using a formula. The borrower’s annual income is compared to the federal poverty threshold based on state and family size. The borrower’s annual income is subtracted from a percentage of the federal poverty guideline to determine discretionary income. The specific IDR plan selected determines the percentage to be used. The formula for discretionary income is shown below.
The federal poverty guideline measures income level issued annually by the Department of Health and Human Services (HHS). It varies based on family size and the state of residence. Annual income is calculated from the borrower’s gross income to determine how much is taxable. It includes wages, dividends, capital gains, business income, and other income minus specific deductions.
IDR plans rely on discretionary income to determine monthly payment amounts, ensuring loan payments are affordable and reflect the borrower’s ability to pay. The approach prevents financial hardship, enables consistent payments, and reduces the risk of delinquency or default by considering income and living expenses.
What Happens if Income or Family Size Changes During an IDR Plan?
If income or family size changes during an IDR plan, the borrower must update the information with the loan servicer to have their monthly payments recalculated based on the new data. A new application for an IDR plan needs to be submitted at StudentAid.gov/idr or directly to the service provider online to provide supplementary information supporting the request.
Updating the IDR plan requires the borrowers to provide documentation of the new income and family size through the servicer’s online portal or by submitting a form. The process involves filling out a recertification form, which requires borrowers to report current income, household size, and other relevant financial information. Following the process ensures that the debtor’s payments remain affordable.
Monthly payments under IDR plans are determined by discretionary income, which is determined by family size and income. Discretionary income drops during a loss in income or an increase in family size, resulting in lower monthly payments. The servicer uses the revised data to recalculate the payment when it has been updated. Adjustments are available to be requested anytime if there is a major change in income or family size. The modified payment reflects the new financial condition and increases or decreases monthly payments, assuring affordability based on current financial circumstances.
How Often do Borrowers Need to Recertify for Income-Driven Repayment Plans?
Borrowers need to recertify for Income-Driven Repayment plans annually. The annual recertification process is a step for IDR plans, where borrowers submit updated information about income and family size to the loan servicer. The process is completed online or via mail and requires documentation such as pay stubs, tax returns, or proof of unemployment.
The goal is to adjust monthly payment amounts to reflect the borrower’s current financial situation, keeping payments affordable. Failure to recertify on time results in the repayment plan returning to a standard repayment plan or the borrower losing eligibility for IDR benefits. Borrowers must continue to finish the procedure yearly, regardless of income or family size changes. Failure to recertify results in the loss of IDR benefits and increased monthly payments to the standard repayment level.
What are the Potential Tax Implications of Loan Forgiveness Under IDR Plans?
The potential tax implications of loan forgiveness under IDR plans include the forgiven amount being treated as taxable income, resulting in tax liability in the year the loan is forgiven. The IRS considers the forgiven amount taxable income, pushing the borrowers into a higher tax bracket.
Exceptions and temporary relief methods exist. Under the American Rescue Plan Act of 2021, any student loan forgiveness obtained between January 1, 2021, and December 31, 2025, is free from federal income taxes. The tax ramifications start again in 2025. Payback amounts on loans stay taxable in some areas, so borrowers must check their state’s tax regulations.
IDR programs help by lowering monthly payments and waiving the outstanding balances, but borrowers must be aware of probable tax implications. Reducing the financial impact of loan forgiveness is accomplished by putting money aside to pay the tax burden or by speaking with a tax expert.
Can Parent Plus Loans Be Repaid Under Income-Driven Repayment Plans?
Yes, Parent PLUS loans can be repaid under Income-Driven Repayment Plans. It is applicable after being consolidated into a Direct Consolidation Loan. Parent PLUS Loans are eligible for the Income-Contingent Repayment (ICR) plan. The ICR plan bases monthly payments on the borrower’s income and family size, making it manageable for borrowers with lower incomes.
The remaining loan balance is forgiven after 25 years of qualifying payments under ICR. The forgiven amount qualifies as taxable income, resulting in a heavy tax liability. Direct Parent PLUS Loan borrowers benefit from income-driven repayment through consolidation despite not being directly eligible for other Income-Driven Repayment (IDR) plans such as Income-Based Repayment (IBR) or Pay-As-You-Earn (PAYE). Monthly payments under the ICR plan are limited to 20% of the borrower’s disposable income or the amount owed under a set 12-year repayment plan.
How does One Switch Between Different Income-Driven Repayment Plans?
To switch between different Income-Driven Repayment plans, follow the 8 steps below.
- Review the current plan. Understand the terms and conditions of the current IDR plan. Compare the terms with currently available IDR plans to determine which suits the borrower’s financial situation.
- Use the loan simulator by going to the Federal Student Aid website. Calculate how much each IDR plan costs monthly based on family size and income.
- Gather needed documentation. Gather evidence of income, such as tax records or pay stubs. Make sure to have the personal data and loan details ready.
- Submit an IDR Plan request. Fill out the Request for an Income-Driven Repayment Plan form on the Federal Student Aid website. Fill out the form by selecting the preferred IDR plan.
- Contact the loan servicer. Send the completed form to the person handling the loan. Receive assistance with the procedure by contacting the loan servicer directly.
- Wait for approval. The company that handles the loan reviews the application and informs the applicant if it has been approved.
- Confirm the change. Examine the updated terms and conditions of the chosen IDR plan after authorization. Make sure that the length of the repayment period and monthly installments meet the borrower’s expectations.
- Annual recertification. Remember to recertify income and family size annually to remain on the chosen IDR plan. Failure to recertify results in higher monthly payments.
What are the Common Challenges Borrowers Face with Income-Driven Repayment Plans?
The common challenges borrowers face with Income-Driven Repayment (IDR) plans include difficulties with documentation requirements, the burden of annual recertification, and increases in interest due to capitalization.
IDR plans are loans that borrowers use to pay off debts over a set period. The drawbacks of IDR include the documentation requirements, which require borrowers to provide accurate proof of income and family size to determine payment amounts. The process is time-consuming for borrowers with fluctuating incomes or non-traditional employment.
The next challenge is the recertification procedure, which mandates that borrowers must recertify family size and income yearly to continue eligibility for IDR plans. Failing to do so results in a return to a conventional repayment plan, which entails larger monthly payments and the loss of IDR benefits. Borrowers need help adjusting recertification paperwork if the financial situation changes throughout the year.
Increases in capitalization and interest are another challenge. The total amount of debt borrowers incur rises due to the capitalization of interest accrued or missed payments, which increases the loan’s principal amount. It impacts the borrower’s capacity to handle loan payments and maintain financial stability.
How does One Maintain Eligibility for Income-Driven Repayment Plans?
To maintain eligibility for Income-Driven Repayment (IDR) plans, borrowers must complete annual recertification, submit updated income and family size information, report changes in financial situation, and make timely payments. Borrowers must recertify income and family size annually and submit new documents to the U.S. Department of Education to remain eligible for IDR plans. Failure to do so results in being placed on the Standard Repayment Plan, which requires higher monthly installments.
The monthly payment amount and eligibility for the IDR plan are impacted by major changes in income or family size, which is another requirement that borrowers must disclose at any time during the year. The financial obligation returns to a standard repayment plan with increased monthly installments if borrowers fail to reaffirm on time and lose the IDR privileges. Borrowers must report to the loan servicer any significant changes in income or family size outside of the annual recertification period, such as a decrease in income or an increase in family size.
An immediate update allows for adjusting the payment amount to reflect new financial circumstances, ensuring affordability and preventing the loan from becoming delinquent or defaulted. Maintaining eligibility involves making timely payments under the IDR plan, ensuring the borrower remains in good standing, and benefits from the plan’s provisions, including loan forgiveness.
What documentation is required To Apply for Income-Driven Repayment?
The documents required to apply for Income-Driven Repayment are listed below.
- FSA ID: The Federal Student Aid ID (FSA ID) is a unique username and password combination used as an electronic signature for students and parents applying for federal student aid. It is used to access and complete the Free Application for Federal Student Aid (FAFSA) and sign federal student loan documents. The FSA ID is needed for IDR plans, allowing the U.S. Department of Education to access and verify tax information and ensure accurate income assessment for repayment calculations. Student aid and loan management are simplified.
- Personal Information: Personal information, including name, address, date of birth, Social Security number, and financial information, helps the U.S. Department of Education verify identity, assess income and family size, and determine repayment amounts. Personal information is used to tailor repayment plans, reduce monthly payments, and manage student loan debt. It ensures accurate processing and appropriate benefits under the IDR plan.
- Spousal Information: Spousal information includes the borrower’s spouse’s name, date of birth, Social Security number, and income details. It helps the U.S. Department of Education assess combined income and family size and determine repayment amounts. The information is used to tailor the repayment plan to the borrower’s financial situation.
- Income Information: Income information refers to data regarding the borrower’s earnings, including wages, salaries, bonuses, and other sources of income. Income information’s importance lies in securing and personalizing the application process and ensuring the financial data is accurately processed.
How does Income-Driven Repayment Impact Credit Scores?
Income-Driven Repayment does not directly impact credit scores, but timely payments under the plans help maintain or improve credit scores, while missed payments negatively affect the score. Borrowers’ credit ratings are adversely affected by IDR plans, which repeatedly fail to make payments or default on the debt.
Untimely payments lengthen the repayment schedule, forcing borrowers to bear the debt for longer periods. It has an impact on credit scores, affecting the borrower’s credit usage ratio and capacity to obtain fresh credit. A lengthy period of high debt visibility on credit reports due to the prospect of loan forgiveness after 20 or 25 years impacts lenders’ opinions of the borrower’s trustworthiness.
Enrolling in IDR plans does not involve adding another loan or opening a new credit line, so it does not directly affect a borrower’s credit score. IDR plans hurt a borrower’s credit profile because the loan sum declines more slowly than normal repayment plans. IDR plans make monthly payments more reasonable depending on income, which improves borrowers’ credit scores and helps them avoid missing or late payments.
Are there Any Disadvantages to Choosing an Income-Driven Repayment Plan?
Yes, there are disadvantages to choosing an Income-Driven Repayment (IDR) plan. The longer repayment terms, increased interest over time, and large tax burden on forgiven loan balances are drawbacks of an IDR plan. Borrowers end up paying a lot more in interest throughout the loan compared to regular repayment plans because of the longer repayment period, which lasts 20 to 25 years.
IDR plans have lower monthly payments, which are not consistently enough to pay off the accrued interest. Managing an IDR plan gets complicated and expensive in the long term because it requires borrowers to recertify yearly income. A borrower’s monthly payment rises, and outstanding interest soars if they don’t recertify on time. Consider selecting an IDR plan to minimize financial hardships and tax obligations.
What Happens if a Borrower Misses a Payment Under an Income-Driven Repayment Plan?
If a borrower misses a payment under an Income-Driven Repayment plan, borrowers are subject to late fees, a change in loan status from defaulted to overdue, and the risk of losing the IDR benefits. Losing IDR benefits results in higher payments and impacts the credit score and eligibility for forgiveness programs. Interest on a loan gets charged if a borrower fails to pay under an IDR plan. The interest becomes capitalized and raises the principal amount of the debt. The loan servicer places the borrower in administrative forbearance for 60 days while processing the required paperwork. It is more difficult for the borrower to manage loan payments if they are removed from the IDR plan and monthly payments return to the usual payback level.
