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Student Loan Repayment: Balancing Affordability and Income Verification Requirements

College graduates today face significant economic challenges like record inflation and shifting political priorities, especially those centered around student loans. During the pandemic, those with federal student loans could suspend loan payments and get a 0% interest rate. However, the loan payment pause will end in September 2023, with payments due the following month. 

Borrowers have been informed about the end of loan payment deferrals, but it does require a budget assessment. Payments are also resuming on the heels of the Supreme Court decision opposing the Biden administration’s student loan forgiveness plan. All borrowers should take a fresh look at the repayment options available to them, including those based on income. To prepare, review your income and the proof you’ll need to confirm eligibility for the right-sized payment for your budget. 

1. Paystubs

One of the most common ways to verify your income for any financial transaction is your pay stub. Whether you get a paper check or have direct deposit, your employer-provided paystub is key for income verification

Your pay stub lists key information about your hours worked, benefits, and address of record. It’s best to have several paystubs to show a history of income, which can further support your verification. 

2. Your W2 

The annual document you use to file your taxes comes in handy when it’s time to prove your income. This straightforward standardized form shows your pre-tax income, taxes paid, and any deductions. Your eligibility for an income-driven repayment plan hinges on confirming your earnings, and a W2 is an official document that can help. 

Download your most recent W2 from your employer’s timekeeping platform or request it from the Internal Revenue Service. If you don’t have an IRS account, you can create one in just a few minutes.

3. An Income Verification Letter

If you don’t have a long track record of income or have recently changed jobs, get an income verification letter. This letter, written by your employer, outlines your income, dates of employment, and other compensation details. 

Most human resources professionals are familiar with this type of request, but if not, review your loan requirements for instructions. Generally, these letters should be written on company letterhead and signed by an official. 

4. 1099s

If you’re self-employed, your 1099s can help support your income claims. These records of your payments earned from work outside of a traditional salary role confirm earnings during a calendar year. 

Similar to a W2, 1099s are issued from a company or person you do business with. Keep in mind, 1099s are only required to be filed when payments exceed $600, according to IRS rules. If you do contract work below this threshold, your annual tax filing may provide better income verification.

5. Your Annual Tax Filings

Tax season may not be your favorite time of year, depending on your history of getting a refund or not. Whatever your experience, your annual tax filing provides essential documentation you’ll need for many major financial transactions. 

This summary of your annual earnings pulls double duty by showing not only your income but your family size. Income-driven repayment plans generally include a calculation where your family size is taken into account for whether you qualify. Your tax filing will also show your adjusted gross income or AGI clearly, which most income-driven plans reference for eligibility.

6. Bank Statements

An official record of your income through your monthly bank statements can reinforce your other documentation.  Download several months’ worth of statements to show a history of deposits of the same amount. 

If you’ve recently changed jobs, had a change in compensation, or both, this can help support your claims. Most income-driven plans require annual confirmation of income, and if your income has decreased, you may get a lower payment. 

7. Unemployment Filings

If you’re experiencing unemployment, your filings for unemployment status are essential to verify your income. While your payments aren’t from traditional work, they are counted as income. Contact your state unemployment office to request your statement. 

This documentation is important for showing your overall income, especially if you’re seeking a payment adjustment. If your income changes due to unemployment, reach out to your lender for a reassessment. 

8. Pension Statements

While you may not yet be retired, your co-signers may be. Co-signers and parents who take on student loans for their children will need to show pension statements for income verification, says AARP. Request this documentation from your pension provider, which is often available on your secure online account. 

Individuals receiving survivor benefits or spousal benefits will also need to include this information. Children of public service professionals who perished in the line of duty may receive benefits, too. Include all income, no matter the source, even if it is not received from traditional work.

Avoid Application Rejections with the Right Documentation

Don’t miss out on filing for the income-based student loan repayment plan you’re eligible for because of poor documentation. Gather your proof of income now and submit your request early. While the student loan forgiveness plans promised seem unlikely, new federal student loan programs are on the horizon. Enroll in an income-based plan today and manage your student loan debt without sacrificing your financial future. 

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