Federal student loan servicers are in the process of releasing a new application form for all income-driven repayment plans, including ICR, IBR, PAYE, and the “Revised Pay As You Earn” (REPAYE) plan, which is the latest income-driven repayment option available to borrowers. Not all servicers have released the application yet; it is being phased in this month as REPAYE is being rolled out. Some servicers are ahead of others.
Note: REPAYE is not yet formally available – servicers are saying REPAYE will be available to borrowers by the third or fourth week of December.
The good news? The new form provides an option for borrowers to select REPAYE.
The bad news? Everything else, basically.
The form is an absolute disaster. Whereas the original income-driven repayment application was fairly intuitive and straightforward, the new application contains 11 “sections” and 27 individual questions that are an exercise in choose-your-own-adventure (“if yes, proceed to Question X; if no, proceed to Question Y”). The application complicates simple questions that were easily answerable before – for example, instead of one question to determine a borrower’s family size, there are now three.
Most troubling to me is ambiguous and contradictory language regarding what a borrower’s spouse must provide on the new application. By way of background, under the current income-driven repayment plans (ICR, IBR, and PAYE), borrowers who file taxes separately from their spouse must only provide their individual income information, since federal loan servicers will consider joint income only if the borrower files taxes jointly with their spouse. So on the old application form, a borrower who files taxes as married-filing-separately is not required to put down any spousal information at all. Under REPAYE, however, the loan servicer must consider joint marital income regardless of tax filing status.
On the new application form, because of REPAYE, the 27 questions appear to require borrowers to disclose spousal income information regardless of the repayment plan being selected, and regardless of the borrower’s marital tax filing status. The form does state that the spouse’s information will only be considered for the REPAYE plan or if the borrower files taxes jointly. But buried in the application’s dense instructions, there is clear language that a borrower does not need to provide spousal income information if the borrower is applying for ICR, IBR, or PAYE and files taxes separately from their spouse.
I anticipate widespread problems with this new application. The more complex an application is, the more room there is for both borrower and servicer error. Furthermore, because of the application’s inherent ambiguities and inconsistencies, I predict that there will be huge new impediments to servicers properly processing these applications.
For example, I can foresee circumstances where a borrower applying for IBR, ICR, or PAYE as married-filing-separately is denied if they don’t provide spousal income information; the form does seem to require this, even though it also says that it’s not required. I can also see a situation where that very same borrower supplies spousal income information in (apparent) compliance with the form, but the servicer erroneously “counts” the spouse’s income in its calculation of the borrower’s monthly payment, thereby causing the calculated payment to be much higher than it should be under the law.
Folks, this is going to be messy. If you’re applying for income-driven repayment during the next few months, be vigilant, stay on top of your servicer, vigorously dispute any problems, and seek professional help if necessary.