Who is impacted by the federal student loan emergency forbearance? 

When Congress passed the CARES Act in 2020, it placed all federally-owned student loans in forbearance, freezing all payments, interest accrual, and income recertifications. That means if you have Direct, Perkins, PLUS, FFEL, or HEAL loans owned by the Dept. of Education, they’re on hold until the end of September 2021. Any privately-held loans, unfortunately, do not count. If you are pursuing Public Service Loan Forgiveness (PSLF), these months of administrative forbearance count toward your qualifying payments as long as your employer qualifies and you’ve continued to work full-time.

How does income recertification fit in?

Last week we discussed income recertification for those on income-driven repayment (IDR) plans. During this administrative forbearance period, they have been extended by 20 months from the original anniversary date. For most folks, that’s great news! Since incomes generally trend upward, it will usually behoove you to wait as long as possible to recertify income because–once you do–your monthly payment is liable to go up. Is this a universal rule? Of course not! People lose jobs, they move to a new state, you could have worked fewer hours, and on and on; there are tons of reasons why income may not increase from one year to the next.

What to do if your income decreased during the pandemic

If you made less money during the emergency forbearance period (from March 2020 on), the extension on income recertification may not be so helpful to you. If you made more money in 2019 than you did in 2020 and recertified based on 2019’s taxes, you could wind up paying more than necessary when student loan payments resume in October. You would be better off recertifying now so as to reflect your lower income to reduce your payment. Remember: you can always update your income at studentaid.gov so your current payment reflects your current income. Doing so may not always be beneficial, so it’s a good idea to check first with your student loan professionals.

Some real life figures

Dr. Antoine is a family medicine practitioner with a major provider on the East Coast. 2019 was a pretty typical year for him and his compensation was about $220,000. 2020 was a wholly atypical year and his salary was temporarily reduced due to the financial squeeze of the coronavirus pandemic, so he made $192,500. Because his income went down, it didn’t make sense to keep paying his $1,672 monthly student loan payment based on his 2019 taxes. By recertifying his income early, he was able to reduce his monthly payment to $1,440, which saves him $232/mo., or $2,784 a year. It was easy, it was painless, and it’s paying for a brand new refrigerator!

The recertification extension can be a huge boon to some, but not to all. Take a look at your taxes over the last two years and think about what might be the best plan for your situation. If all these numbers make your head spin, call the experts and let them do the crunching for you.