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Income-Driven Repayment FAQs

May 21, 2015

Income-driven repayment (IDR) plans are a great choice for borrowers who would like to make their student loan debt more manageable by reducing their monthly payment amount. Here are some questions we frequently receive from schools about IDR.

Q: We hear from borrowers that there has been an inconsistent approach to the income-driven plans. What exactly is the process you use to determine a borrower’s monthly payment when considering their income? How is a monthly pay stub used in calculating income?

A: There are two ways for borrowers to apply for an income-driven repayment plan. Our initial request is for the borrower to submit one of their two most recent tax returns.

In the event that the tax return does not reflect their current income, a borrower can submit a paystub reflecting their taxable gross income, which we multiply by 12, 24, 26, or 52 based on the frequency of pay during the year. The submitted paystub must either show the frequency of pay or the borrower must write the frequency of pay on it.Please note that this method requires the Alternative Documentation of Income (ADOI) form.

Example: A paystub is sent with a bi-weekly pay frequency. We take the federal taxable gross income and multiply it by 26 (since there are 26 pay periods a year). So if the federal taxable gross income on the pay stub is $1408.90, we multiply that by 26 and use the $36,631.40 as the adjusted gross income (AGI) to calculate the IDR. If the borrower’s spouse has income, we would repeat the same process and add the two incomes together.

Q: Will you accept a $0 income tax return?

A:  If a borrower has no income, they can check the correct boxes on the application and send in acceptable income documents, and we will process the application.

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Q: Students have tried to provide $0 tax return for an income-driven plan and have been told by certain servicers that this documentation is “not acceptable.” What is needed or deemed acceptable when a borrower is declaring zero income? Many students are saying servicers are still asking for a paystub since they are now working, while other students have a different story.

A: This is dependent on what the borrower states their income is while on the phone or what their documentation states. Along with the application, borrowers will be asked to provide income information. This may be either their AGI or alternative documentation of income.

The borrower can document their income using AGI if:

  • They have filed a federal income tax return in the past two years and
  • The income on their most recent federal income tax return is not significantly different from their current income

So, if a student was unemployed or had a low AGI on their most recently filed tax return and now is working at a job where they make $60,000 a year, they should provide paystubs. But if the borrower calls in and does not disclose their current income, the rep will advise them to send in their tax return. Ideally, the 1040 is the best form of income a borrower can submit, but if their income now is significantly different (either higher or lower) than their most recent filed tax return, we would ask for alternative documentation of income.

If a borrower does not have taxable income or only receives untaxed income, they need to select the box on the application that states they are certifying that they do not have any taxable income.

Have more questions? Feel free to contact your Regional Director or the School Service Center (866.463.5638).

 

Lou Murray, Regional Director, Nelnet Partner Solutions

Lou Murray, Regional Director, Nelnet Partner Solutions

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