Follow 4 Tips to Stay on Top of an Income-Driven Repayment Plan

A few weeks ago, the Department of Education announced that as of midsummer, nearly 3.9 million federal student loan borrowers had a n income-driven repayment plan -- a 56 percent increase from the same time last year.

This was great news, as it indicate s that not only are more consumers aware that such lower payment options exist, but they are also using them to ensure their payments are manageable. The same announcement showed a 2 percentage point drop in the proportion of federal student loan accounts that were past due during that same period. Coincidence? We don't think so.

So now that we've got borrowers utilizing these programs, we can stop worrying about them, right? Wrong. According to data published by the Department of Education last year, almost 60 percent of student loan borrowers who have chosen an income-driven repayment plan fail to submit their annual renewal applications on time. This is an especially alarming number if you consider the consequences of submitting late.

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A borrower who pays under one of the income-driven repayment plans such as income-based repayment, income-contingent repayment or Pay As You Earn is required to renew that plan annually. While these plans are all slightly different, in general, failure to renew your plan on time can result in some or all of the following consequences:

-- Your monthly payment may convert to a ten-year standard repayment plan, which can be a very significant jump from your income-driven repayment payment.

-- Any outstanding accrued interest can be added to your principal balance.

-- If applicable, there could be a ceasing of the interest subsidy allowed on some loans during the first three years under the income-driven repayment plan.

With such expensive consequences, why do so many borrowers fail to renew their income-driven repayment on time? After talking to affected consumers and participating loan holders, the Student Loan Ranger has come up with a checklist to ensure that you don't become part of this statistic.

1. Know whom you owe: This might seem like an unnecessary reminder, but the Student Loan Ranger gets questions almost daily from folks who don't know who holds their student loans. If you're one of them, you can find a list of loans, loan holders and their contact information by logging into the National Student Loan Data System.

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2. Open y our m ail -- a ll of i t: The number one reason that borrowers fail to renew their income-driven repayment plan on time is because they don't see the reminder notices and instructions. According to the consumers we've talked to, this is consistently because they don't open their mail.

Many borrowers pay their student loans via automatic payments through their bank or have a payment of zero under their income-driven repayment plan -- yes , that's possible. So when they receive emails or snail mail from their loan holders, they assume it's a bill and toss it into the physical or virtual trash bin.

Expect to start receiving reminders for the renewal between two and three months before the end of your current 12-month income-driven repayment period, with the renewal documents due up to a month before the end of that period. It's very important to make this deadline as, in most cases, if the loan servicer doesn't receive the documents on time, all of the consequences we mentioned previously will kick in. It might be a good idea to set your own reminder on your cellphone or other device.

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3. Keep t rack of y our f inancial s ituation : Many consumers using the income-driven repayment plans don't realize that they actually don't have to wait for the 12-month period to expire if their financial situation changes.

If your income increases or decreases, you can contact the loan servicer at any time to submit updated financial information, have your payment adjusted accordingly .

On a related note, remember that if something causes you to not be able to afford your payments at all, it's important to contact the loan servicer right away. Especially with federal loans, there's almost always something your loan holder can do to provide relief and help you avoid late fees and credit hits.

4. Again, remember to open your mail: Seriously -- remember that statistic we listed earlier -- almost 60 percent of borrowers don't renew their income-driven repayment plan on time, and that's mostly due to failure to open their mail and see the reminders. What that number doesn't show is that we see that many of those borrowers who fail to renew on time fall past due on these loans.

Remembering to renew your income-driven repayment plan can be a challenge, which is why organizations like ours and federal student loan servicers are being much more proactive about reminding borrowers when it's time to renew.

Still, it's always best to take initiative on your own. Know your loan servicer and how to reach them, understand your payment plan and reach out if you get in trouble.

Betsy Mayotte, director of regulatory compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, is a frequent contributor to ASA's SALT Blog; responds to public inquiries via the advice resource "Just Ask;" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.