Today was a real doozie for me. I was sorting out my student loan info because the servicing company had requested my most recent tax documents at the beginning of December. Oops. I’d meant to do it (promise!), but the holidays took their toll and it must’ve slipped my mind.
As I sifted deeper into the mountain of neglected mail, I discovered another fairly recent notice demanding that I cough up almost two grand of unpaid interest within a matter of weeks – or risk having it tacked to my principal. Needless to say, I was livid.
I decided to do some investigating today, and I simply must share what I learned about student loan repayment. I hope it helps someone avoid the financial catastrophe I experienced today.
ICR Plan Members: Read Statements with a Magnifying Glass
I’m one of the lucky few who qualified for an ICR (Income-Contingent Repayment) plan. It’s pretty sweet, and the perks are great. If you qualify, you’ll make monthly payments for a maximum of 25 years. The payment amount is calculated based upon your adjusted gross income (and your spouse’s if you’re married – even if you’re dealing with the debt yourself and you file separate taxes).
Other factors considered during the calculation of your payment amount include the size of your family and your total student loan balance. The total must also be the lesser of two amounts:
20% of your discretionary income
The amount you’d shell out if you paid off your loan in 12 years, multiplied by an “income percentage factor” that fluctuates as your annual income changes.
Sounds awesome, right? I thought so – I was psyched because my household’s income was quite low the first year of my ICR enrollment. Translation: I was able to get a $400+ monthly payment knocked down to roughly $70. I set up automatic drafts from my savings so I’d have an immaculate on-time payment history, and I called it a day.
Terrible mistake. I neglected to read the fine print on my statements. If I had, I would have discovered that the calculated payment amount under the ICR plan may be less than the accrued interest on my loan, and in that case, the interest is capitalized. It happens once a year, a fact that I was made painfully aware of after I opened that second statement today.
Lesson learned: Read every square inch of text on all correspondence from your student loan company.
Submit Docs ASAP
The other big lesson I learned from my student loan debacle: when the company asks for documentation from you – you jump. Fast. Student loan companies are looking for any excuse to trip borrowers up since the government rolled out these new partial loan forgiveness programs. After all, they want their money! The programs trim payments, loan terms, and forgive big chunks of student debt. This is causing student loan companies to lose profits, which is why we’re seeing them place aggressive requirements on borrowers who want to stay in the program.
Hey, they’re businesses, so they gotta make a buck. I get that. But don’t let them make that buck off of you. Defend yourself by jumping through each and every hoop your student loan company sets in from of you, and give them every bit of documentation they ask for. If you survive the paperwork shower, their hands are tied. They must keep you on your current repayment plan as long as you meet the original guidelines for inclusion.
Be smart, be vigilant, and you can beat the student loan companies at their own game.