Are You at Risk of Being Kicked Off IDR? Learn About Income Limits

Federal student loan borrowers can take advantage of income-driven repayment (IDR) plans that allow for low monthly payments and the opportunity for loan forgiveness. Repayment options have changed over time, adding to the layers of complexity that plague the student loan system. Therefore, borrowers can feel blindsided when they receive notification that they’ve been denied access to an income-driven repayment plan.

Here are some reasons you might be kicked off or denied income-driven repayment and how to move forward.

Why you were denied for income-driven repayment: Common scenarios

If your request for income-driven repayment is denied, you likely fall into one of these three categories.

Reason 1: You were denied on the last round of double consolidation

The main reason we’re seeing borrowers denied income-driven repayment revolves around consolidating Parent PLUS Loans via the double consolidation loophole.

Parent PLUS borrowers have the short end of the stick when it comes to repayment programs. Under existing rules, Parent PLUS loan borrowers can consolidate into a Direct Consolidation Loan and receive access to one IDR plan — Income-Contingent Repayment (ICR).

However, the double consolidation loophole allows you to side-step this limitation by essentially masking the original Parent PLUS Loan code by consolidating twice. In turn, you become eligible for the remaining IDR plans, including President Biden’s new SAVE plan.

Here’s the problem. Some borrowers have been denied access to these additional income-driven plans on the last round of consolidation. Why is this?

Initially, we thought student loan servicers were processing the IDR application before the double consolidation process was complete. But now we’re seeing that loan servicers have changed their processing procedures, and they’re looking at the entire loan file to see if there was ever a Parent PLUS loan. They’re then using that information as the basis for denying income-driven repayment.

But the double consolidation process is a legal loophole (until July 1, 2025), meaning you can and should use it if it benefits your student loan journey. So, here’s where the old “knowledge is power” saying comes in.

If you’re ready to use the double consolidation loophole, wait to apply for IDR.

Choose the Standard Repayment plan on the final round of consolidation instead of applying for an income-driven repayment plan. Once the double consolidation process is complete, submit an online IDR application. If you don’t see that option available online, call your loan servicer and request to be placed on the desired IDR plan.

If you’ve already been denied income-driven repayment using double consolidation, advocate for yourself.

Call your loan servicer and have them check your loan file to acknowledge the double consolidation. Loan servicers are starting to understand the double consolidation process, but not all representatives are knowledgeable. You may need to push back on the initial denial or ask to speak with a manager due to the complexity of double consolidation.

Reason 2: Your income is too high for certain IDR plans

Apart from double consolidation, federal borrowers shouldn’t be denied income-driven repayment when applying for the new SAVE plan because it doesn’t have an income cap. The only real exception to this is if you have Federal Family Education Loan (FFEL) Program loans. In this case, you’ll need to consolidate into a Direct Consolidation Loan to be eligible for the SAVE plan.

But you might be denied income-driven repayment if your income is too high for the following IDR plans:

• Income-Based Repayment (IBR). Student loan payments are capped at 15% of discretionary income for up to 25 years for those who borrowed before July 1, 2014.
• New IBR. Payments are capped at 10% of discretionary income for up to 20 years for those who borrowed on or after July 1, 2014.
• Pay As You Earn (PAYE). Payments are capped at 10% of discretionary income for up to 20 years for those who borrowed after October 1, 2007.

Unless you file taxes separately or strategically reduce your income in other ways, there isn’t a way to access those IDR plans. However, you can still take advantage of the new SAVE plan or ICR (although ICR technically has a payment cap based on a 12-year standard plan calculation). 

Now, let’s say you’re currently on IBR or PAYE, and your last tax return has a significantly higher income, causing you to have a higher payment than the 10-Year Standard Repayment plan. Because you no longer meet the partial financial hardship requirement, your loan servicer will likely send a denial letter when you recertify.

Many borrowers then assume they’re no longer eligible for PAYE or another IDR plan, which can be terrifying if you’re working toward Public Service Loan Forgiveness (PSLF) or IDR forgiveness. Fortunately, that’s not the case.

If you are denied income-driven repayment based on high income, don’t panic.

The partial financial hardship is simply defined as having an income-based repayment amount below what your payment would be on the Standard Repayment plan. So, if you receive one of these letters, know that you aren’t being kicked off that IDR plan — you’re just getting your payment capped at the 10-Year Standard Repayment amount while still receiving student loan forgiveness credit.

Loan servicers might direct you to contact them if your income is too high for a certain IDR plan. But they can’t take you off of it without your permission simply due to your income. So, you don’t actually have to do anything if you’re notified that you no longer meet the partial financial hardship requirement. 

Reason 3: You failed to recertify your income

Failing to recertify your income and family size annually could impact your IDR status and have other consequences. Technically, you won’t be denied income-driven repayment for failing to recertify. But you could be kicked off the plan or transitioned to a monthly payment that is equivalent to the Standard Repayment plan amount, depending on your situation.

The U.S. Department of Education is now providing an optional solution to help prevent borrowers from forgetting to recertify. In the past, borrowers had to recertify their income each year manually. But you now have the option to link to your tax return for the current recertification and automatically going forward. This option cuts out the middleman, so borrowers don’t unintentionally derail their IDR progress or end up with higher loan payments. The hope is that there will be far fewer people failing to recertify going forward if people accept this new automatic recertification option.

Note that IDR borrowers aren’t required to recertify until after March 2024. But your individual recertification deadline will depend on your anniversary date. You can find this information on your StudentAid.gov account or by calling your loan servicer.

What to do if your request for income-driven repayment is denied

We’ve touched on a few solutions for each of the most common reasons borrowers are denied income-driven repayment. But here’s a quick rundown of steps you can take to overcome these challenges:

Steps to take if you have issues due to double consolidation

If you’ve correctly completed the double consolidation process, don’t take “no” for an answer. Your financial future is on the line, so you need to take an active role in your student loans.

1. Call your loan servicer. Immediately escalate the conversation to a supervisor if a representative isn’t helpful. You can also hang up and call again in hopes of getting a more knowledgeable representative.
2. Have them acknowledge you completed the double consolidation process. Then, request to be put on your desired IDR plan, as this is a legal loophole through mid-2025.
3. Submit a complaint. If you still aren’t getting anywhere with your loan servicer, use the Federal Student Aid (FSA) system to file a complaint. If the issue isn’t resolved, you can further escalate your complaint to the FSA Ombudsman Group.

Options if you no longer have a partial hardship

You can explore a few routes if your income increases to the point that you no longer meet the partial financial hardship requirement.

• Option 1 – Contact your loan servicer and request to stay on the plan. You can use this script, “I know that I no longer qualify to pay based on my income. However, I qualify to remain on the IBR (or PAYE) plan and make payments equal to what my amount would be on the 10-Year Standard Repayment plan.”
• Option 2 – Consider an alternative IDR plan. Each IDR plan has its own payment cap, and the new SAVE plan doesn’t have one at all. So, you might benefit from switching to a different IDR plan. That said, you’ll need to consider each option to avoid a repayment misstep. For example, you might want to stay on your existing IDR plan if your payments would be higher under the SAVE plan since it doesn’t have a payment cap.
• Option 3 – Look at ways to lower your adjusted gross income (AGI). There are legal ways to lower your AGI, such as increasing your pre-tax retirement contributions. You can also consider whether you’d benefit from filing your taxes separately to exclude your spouse’s income from your payment calculation. Once income adjustments have been made, you can reapply at any time using alternative income documentation. For example, you can use a pay stub showing you’ve increased your 401(k) contributions or submit a signed statement explaining your income changes. The statement must be honest, ethical and accurately reflect your current income situation.

What to do if you fail to recertify by the annual deadline

If you fail to recertify, you just need to submit updated income and family size information to your loan servicer. Until your updated information is processed, your payment will no longer be based on your income. Instead, it’ll be calculated based on:

• SAVE plan. The payment amount necessary to repay your loan balance in full by either (a) 10 years from the date you begin repaying under the alternative repayment plan or (b) the ending date of your 20- or 25-year SAVE repayment period — whichever results in the earliest payoff.
• PAYE, IBR or ICR. The amount you would pay under the Standard Repayment Plan is based on the loan amount you owed when you initially entered the IDR plan.

When to get help if you were denied income-driven repayment

You can often advocate for yourself if your request for income-driven repayment is denied. Remember that many representatives aren’t knowledgeable about student loan strategies, such as the double consolidation loophole. So, while it’s important to be nice on the phone, getting the correct information and resolution is even more important.

If you need help deciding if you should stick with your current IDR plan or look at an alternative repayment strategy, our team of student debt experts can help analyze your full financial situation to determine the best course of action. We’ve consulted on over $2.6 billion of student loan debt, ranging from new borrowers to those who are in crisis mode. Book a consult today, and we can help get you on track to avoid or respond to these types of repayment challenges.