Trying to get the lowest monthly payment possible for your defaulted federal student loan? You’re in luck.
In this article, we’ll review the form the U.S. Department of Education uses to give borrowers an affordable payment amount:
The Loan Rehabilitation Income and Expense Information Form
Let’s get to it.
What is the Loan Rehabilitation Income and Expense Information Form?
The Loan Rehabilitation Income and Expense form is the form the collection agency will use if you can’t afford the monthly rehabilitation payment amount based on the adjusted gross income from your tax return and family size (or you haven’t filed a return in the last 2 years.).
The old version of this form was titled “Financial Disclosure for Reasonable and Affordable Rehabilitation Payments”.
The purpose of this form is to get you an affordable monthly payment by calculating your income from all sources and certain expenses.
How is the Monthly Payment Calculated
No matter if you’re trying to get into the rehabilitation program for a Direct Loan, Federal Family Education Loan (FFEL), or Perkins loan, there are only 2 ways to calculate your monthly payment:
- 15% of your monthly discretionary income (AGI minus 150% of the poverty guidelines for your family size divided by 12)
- Comparing your income and expenses using the Loan Rehabilitation: Income and Expenses Form
Almost always, the first option will give you a monthly payment of more than $5.
- Getting Student Loans Out of Default Quickly
- Why Student Loans are Killing Your Credit Score
- Here’s When it Makes Sense to Get a Student Loan Lawyer’s Help
If you can’t afford that payment, ask for a payment based on your income and expenses.
When you do that, be prepared for the loan servicer, collection agency, guaranty agency, or loan holder to ask you a bunch of questions about your money and how you spend it.
How to Get the Lowest Loan Payment Amount
When you can’t afford the payment based on your AGI and poverty guidelines for your family size, your best bet is to ask for a loan payment based on your income and expenses.
This option can get you into a repayment plan that requires you to make $9 monthly payments of as low as $5.
What Household Income is Included
Your total monthly income for the purposes of this form includes:
- Your employment income
- Your spouse’s employment income (only if you live together)
- Child-support and spousal-support payments
- Social Security benefits
- Worker’s compensation payments
- Public Assistance benefits
- Unemployment benefits
Basically, you’re expected to include money you get from any source.
You may be asked to provide proof of your income. If that happens, you’re required to provide documents that are less than 90 days old.
Don’t just take your last two pay stubs. Look them over and make sure you don’t have any added income in there you don’t normally get. Things like overtime, bonuses, and travel pay can make it seem like you’re making more money than you actually do. And if that happens, you can end up with a higher payment than you’d otherwise be entitled to.
So if you want the lowest payment amount you can get, make sure you send documents that accurately reflect your income.
What Necessary Monthly Expenses are Included
Not all of your monthly expenses are considered when calculating your payment amount. The U.S. Department of Education, for the most part, doesn’t care about your expenses for credit cards, your child’s private school education, life insurance, your business, etc.
When trying to figure your affordable payment, total monthly expenses include:
- Food costs (groceries, take-out, PostMates, etc.)
- Housing (rent, mortgage, maintenance costs, renter’s insurance etc.)
- Utilities (gas, water, lights, sewage, etc.)
- Basic Communication (cell phone, landline, cable, internet, etc.)
- Necessary medical/dental (out-of-pocket costs, deductibles, insurance not taken out of your check)
- Necessary insurance (deductible is taken out of your pay stub or that you pay out of pocket)
- Transportation (car note, gas, auto insurance, public transportation, parking, maintenance, etc.)
- Child/Dependent care (private school tuition only if it’s court-ordered)
- Child support/spousal support payments (only if made by court order)
- Federal student loan payments (including administrative wage garnishment payments).
- Private student loan payments
The form and the instructions that come with it suggest that other expenses will be considered.
Each category of expenses has a limit on how much they think you should spend for that category. For example, the food budget for a family size of 1 in Orange County, CA may be $200. Where is that $200 limit coming from? While I’m not certain, I’m pretty sure it’s coming from the IRS National Standards.
But in my experience, they never are.
Almost always, you’re stuck making the most of the expenses above.
Required Supporting Documentation
Most people will only need to submit 2 recent pay stubs or a tax return with their form. Typically, for most expenses, proof of actual expenses isn’t required.
The expenses you are normally required to provide proof of are for:
- Necessary medical/dental costs more than $60 per month
- Out of pocket health insurance costs not taken from your pay stub
- Child/dependent care costs
- Child support/spousal support payments
- Federal student loan payments for loans you’re not rehabilitating
- Private student loan payments
Where to Submit Income and Expense Form OMB No. 1845-0120
Once completed, you’ll typically send the form back to the collection agency.
Depending on the agency, you can do that by mail, email, fax, upload, or using an e-signature service like DocuSign.
For my clients, I usually just fax the signed form and then call to confirm that it was received.
What Happens After the Form’s Submitted
After you submit the student loan rehabilitation income and expense form with your proof of income, the agency will calculate your monthly payment amount.
From there, the collection agency should send you the Loan Rehabilitation Agreement letter.
That letter will detail the rehabilitation process:
- You must make 9 voluntary, reasonable and affordable monthly payments within 20 days of the due date during 10 consecutive months
- Loan Rehabilitation is a one-time thing. Your tax refund may still be taken until you’re decertified for offset
- You’ll regain eligibility for federal student aid after your 6th payment
- The default status will be removed from your credit report after you completed the rehabilitation program; the late payments, however, will remain on your credit history
- Collection fees will be waived at the end of the program
After you sign and return the letter, call the company you sent the documents to and confirm they received everything and that you’re fully enrolled in the rehabilitation program.
I’ve seen many borrowers have to restart the program because not all their documents were received.