Flashy Hollywood writers and actors walk the picket lines, as do workers at rotating hotels throughout Southern California. These workers, and others struggling with a sharp drop in income, are becoming increasingly concerned about a new monthly bill coming up: student loan payments.
But advocates for borrowers say the strike is actually an opportunity for workers to slash their monthly payments, at least for government student loans. And optional repayment plans from the Department of Education, including a new one introduced Tuesday by the Biden administration, can help on that front.
The bottom line is that anyone affected by a strike—pickets and workers sidelined by the walkouts—can have their monthly payments cut or even eliminated altogether while work is sparse. And if they act now, the changes can go into effect before the next payment is due in October.
What are the options for striking workers?
Standard student loan repayment plans work like a mortgage, with fixed monthly payments high enough to pay off the amount borrowed plus interest in 10 years (or 25 years for extended plans). You can also sign up for a version that has incremental monthly installments, with a payback period of 10 to 25 years.
If you’re on a standard plan and your income is dropping, you’re in a bind. That’s where the Ministry of Education is four “income-related repayment plans”. Come in that your payments are not based on the amount of your debt but on the amount of your income. And you can update or “recertify” your earnings at any time, as long as you do so at least once a year.
For workers in Hollywood and other industries affected by strikes, “this is the perfect time to recertify,” said Natalia Abrams, president of the nonprofit Center for Student Debt Crisis. Abrams said she has advised many borrowers to recertify when their earnings drop, whether it’s because they’re between gigs, losing their job, or other factors are eroding their income.
Jackie Filson, a spokeswoman for the nonprofit Student Borrower Protection Center, said an income-based plan is available, although your income could go back up at any time. “The earnings-related refund application only cares about your current earnings, not your past earnings or the likelihood that you’ll make more money if a strike is settled,” she said in an email.
How much would my payment be under an earnings-related plan?
With an income-tested plan, your monthly payment is 10% of your discretionary income, which is any amount over 150% of the state poverty line for most plans. That’s $21,870 for a single person or $45,000 for a family of four. But under the new one Save on a valuable education plan As of Tuesday’s inception, your monthly payment is 10% of your income above 225% of the state poverty line.
“A single, unmarried striking worker is entitled to a $0 payment under an earnings-related payment plan, provided they have no other sources of income during the strike,” Filson added. “It doesn’t matter what type of federal student loan they have, they are eligible to apply for an IDR plan that results in a $0 monthly payment.” Of course, married striking workers must consider their spouse’s income if they file their taxes together, but for a single striker this is easy – they have no income and therefore do not have to pay.”
In fact, anyone earning less than approximately $32,800 would be eligible for a $0 monthly payment under the SAVE plan. The Biden administration estimates that more than a million borrowers fall into this category.
Your payment depends not only on your income, but also on your marital status and the number of dependents. You will have to do that Recertify your incomeMarital status and dependents at least once a year to the Ministry of Education.
How do I prove that my income has decreased?
If you have no income, you can do this submit a signed declaration Saying that doesn’t require proof, Filson said. The Department of Education warns that lying about your income can result in criminal penalties, up to and including imprisonment.
The statement must include your estimated annual gross income; If your income is currently $0, your estimate may be $0. However, if you are married, the estimate must include your spouse’s income, either together with yours if you file taxes jointly, or separately if you file taxes separately.
Claims can become more complicated if you – or your spouse if you’re filing taxes together – are still working, whether at a temporary job, a side hustle, or a fledgling business you passed during the strike. If you would like documentation to support your estimate, you can provide a payslip or a letter from your employer that is less than 90 days old. Your estimate must include all taxable income, such as tips, child support, and unemployment benefits.
Or you can simply submit a signed statement estimating your annual gross income as described above. The self-certification option was added during the pandemic, so it likely won’t be available in a few months, said Michele Shepard, senior director of college affordability at the Institute for University Access and Success.
What do I do if my income increases again?
Once you’ve certified the drop in income, there’s no obligation to notify the department or company servicing your loan when you go back to work, win the lottery, or find another lucrative source of income, according to Abrams of the Student Debt Crisis Center. You would have your current monthly payment amount for a year, she said, until it was time to recertify your income and marital status.
What are the disadvantages of changing plans?
Switching from a standard plan to an income-related plan for your federal loans means you no longer have to pay off your debt on a set schedule, said Shepard of TICAS, a nonprofit. Instead, you make payments over a period of up to 20 or 25 years, depending on the size and type of your loan or loans and the repayment schedule. If there is a balance remaining after the required number of monthly payments, it will be cancelled.
The months you’ve spent making payments under the standard plan count towards the required number in the earnings-related plan. That goes for the months during the pandemic when you didn’t make payments on your federal loans because none were required.
The SAVE plan offers a few other benefits as well. This coming July, the required monthly payment will drop from 10% to 5% of your disposable income. And if you keep track of your SAVE payments, even if they’re too low to cover the interest accrued, that interest isn’t accumulated or added to your loan balance — instead, the department simply wipes it off the books.
That makes SAVE an attractive option even for borrowers whose incomes haven’t fallen, Shepard said. “Everyone should sign up for the SAVE plan out of their own interest,” she said. “There are very few borrowers who could pay more monthly or over time.”
But because you have to pay off your loan over a longer period of time, income-tested plans can result in you paying more interest than on a standard plan, according to the Department of Education. And the amount of debt forgiven after 20-25 years can be considered income on which you have to pay taxes.
How do I sign up for an income-based plan?
You must decide whether to allow the department access to your IRS records to do an initial determination of your income and then have them recertified each year. If you don’t recertify your income every 12 months, you’ll be reverted back to a standard plan until you reapply for an income-tested plan.
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