The importance of timely annual income certification for students loans

Perhaps you are a dental school graduate with large sums of debt and you find yourself with no choice but to enroll in an income-based repayment program for your federal student loans. In many cases this could cause your payment to drop from around $5,000 a month to under $1,000. The difference in your payment typically causes unpaid interest to accumulate separate from your outstanding principal (the amount you originally borrowed).

Your annual interest is based on your outstanding principal. So if you borrowed $450,000 of student loans and your interest rate is 6.5%, your annual interest is $29,250. If five years has gone by and you accumulated $100,000 in outstanding interest, you are still only being charged based on your original principal amount.


There are certain events that can cause your interest to be added to your principal and “recapitalize.” At which point, your principal amount would go up and so would your annual interest charge. One of the events that causes this to occur is filing your annual income certification late.

Each year you must inform your servicer how much income you are making or how much you made in the prior year. You are required to fill out an application either online or a paper application that will need to be emailed or mailed. You will also have to submit income documentation (tax returns or pay stubs). Most servicers will tell you this takes 60 days. However, it’s not uncommon for documents to get lost or paperwork to get filled out incorrectly thus adding weeks or months to the processing time. And even if you are just one day late, your interest will capitalize. And, to continue our example from above, instead of paying interest on $450,000 your interest would now be based on $550,000. You would be charged $35,000 a year instead of $29,000. In addition, you would be responsible for making a standard 10 payment amount ($5,000) until your paperwork gets processed. While you could use a deferral to avoid making the payment, and some income driven repayment plans limit the amount of interest that can be recapitalized, you should still avoid being late at all costs. It’s a big waste of money.

So make sure you file paperwork 90 days early and check on it frequently to make sure everything is getting processed correctly.

~Ryan Schulte, financial advisor

Ryan Schulte

Ryan Schulte is a CERTIFIED FINANCIAL PLANNER® that specializes in working with dentists. He is also the founder of, a student loan consultant group that works with dentists across the country to help them gain an understanding of their debt, their various repayment options and to create a plan for repayment. You can learn more at and contact Ryan at [email protected]

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