REPAYE Student Loan: If you have a federal student loan, you might be able to take advantage of the Revised Pay As Earn (REPAYE) program to help with the repayment.
Like other income-driven repayment plans, the REPAYE plan covers monthly payments at a percentage (10%, in the case of REPAYE) of your discretionary income as decided by state poverty guidelines and other factors. This option can represent some relief from what can often be an overwhelming monthly debt obligation.
However, with lots of students loans repayment options, how do you know if REPAYE is the right one for you?
What Is Revised Pay As You Earn Repayment Plan (REPAYE)?
Before 2015, some federal student loan borrowers relied on the Pay As You Earn (PAYE) program to lower their monthly payments.
Though this program really helped some borrowers, the advantages were only limited to those who took out their first loan after Oct. 1, 2007, and who were able to meet specific financial hardship demands.
Due to the rising student debt and the limited nature of the PAYE program, former President Barack Obama requested that the U.S. Department of Education create a plan that extended the benefits of PAYE so to include more borrowers, including those with older federal student loan debt or those who did not meet the financial requirements of other plans. This brought about the “Revised Pay As You Earn” program.
Under the REPAYE program, qualified borrowers now can receive the benefits of lower monthly payments and the possibility of loan forgiveness after 20 or 25 years of repayment on time.
You may want to choose Revised Pay As You Earn Repayment Plan (REPAYE) in the following instances:
- You are single.
- If you do not have grad school debt.
- You expect a much higher future income.
- You don’t qualify for other income-driven repayment plans.
Monthly Payments Through REPAYE
If you enroll in REPAYE program, you could expect monthly payments capped at 10% of your discretionary income. Your discretionary income, at least as it relates to the REPAYE program, is based on the disparity between your yearly income and 150% of the poverty guideline for your household size.
Since your yearly income and family size has the possibility of changing over time, you must re-certify your enrollment each year with up-to-date information (including your income). In that case, your monthly payments will differ over time, increasing as you make more money or decreasing if you take a pay cut or have more children.
Loan Forgiveness with REPAYE
Another major benefit of the Revised Pay As You Earn Repayment Plan (REPAYE) program is student loan forgiveness. Under this plan, borrowers who are repaying loans for their undergraduate degree can receive loan forgiveness after making qualifying payments for 20 years.
Borrowers who make payments on a loan used for graduate or professional studies will be qualified for forgiveness after making 25 years of qualifying payments.
Have in mind that at this time, any loan amount forgiven at the end of the repayment period will be considered taxable income. Therefore, you may be required to pay income taxes on the amount remaining.
Am I Eligible for REPAYE?
Some income-driven payment options, like the Income-Based Repayment Plan (IBR) and PAYE, require borrowers to meet certain income demands. On the other hand, REPAYE, is not income-contingent and is usually available to anyone who has eligible federal student loans.
The following Direct loans are eligible for the Revised Pay As You Earn Repayment Plan (REPAYE) program:
- Direct Stafford Loans (Subsidized & Unsubsidized)
- Grad PLUS Loans
- Direct Consolidation Loans that did not include Parent PLUS loans
The following loans are eligible only if they are consolidated into a Direct Consolidation Loan:
- FFEL Subsidized Federal Stafford Loans
- FFEL Unsubsidized Federal Stafford Loans
- Federal Family Education Loan program PLUS Loans for graduate or professional students
- FFEL Consolidation Loans that did not include PLUS Loans
- Federal Perkins Loans
Though many borrowers will be qualified for Revised Pay As You Earn Repayment Plan (REPAYE), it is important to note that loans currently in default are not eligible for this program. However, there are many ways of rehabilitating your loans, many of which will open the door to income-driven repayment plans.
Reasons You May Want to Consider REPAYE:
The right income-driven repayment plan can help you with managing your monthly bills and avoid sending your loans into default — and, by extension, your credit score plummeting.
If you are reviewing your options, here are a few reasons why you may want to consider REPAYE:
- You qualify for Public Service Loan Forgiveness (PSLF). If you work for a government agency or nonprofit, you may be eligible for the PSLF, but one of the qualifications is that you enter into an income-driven repayment plan.
- You don’t qualify for IBR or PAYE but are still struggling to make your monthly payments.
- You enrolled in an IBR program prior to the launch of REPAYE. (However, before you switch plans, always check to see if your payment history will count towards the new plan.)
- Your loans are in default and you are considering federal student loan consolidation as a method to remove them from their current status. If choosing this route, you must agree to repay your new Direct Consolidation Loan with one of the income-driven repayment plans currently offered, which include REPAYE.
Pros and Cons of REPAYE
The REPAYE program, like other federal student loan repayment plans, has both its benefits and disadvantages. Benefits include:
- Monthly payments are capped at 10%, making this a more affordable option for borrowers, especially those who don’t qualify for IBR or PAYE.
- Borrowers receive loan forgiveness after making regular payments for 20 or 25 years.
- REPAYE offers some interest subsidies, which can prevent a sizable tax obligation at the end of the repayment period. When enrolled in this repayment plan, the government will pay: all remaining interest on subsidized loans for the first three years; after that point, they will pay 50% of the remaining interest. It will also pay 50% of remaining interest on unsubsidized loans for the duration of the repayment term.
Meanwhile, the potential Disadvantages of the REPAYE program include:
- Payment amounts for married borrowers who choose REPAYE will be based on their combined annual gross income (AGI), even if they file taxes separately.
- Though Revised Pay As You Earn Repayment Plan (REPAYE) offers loan forgiveness at the end of the repayment period, the IRS considers the remaining balance to be taxable income; this can lead to a sizeable tax burden at the end of your loan term.
- Borrowers who could otherwise commit to a shorter repayment term may end up paying significantly more interest over the course of the 20 or 25 years for the REPAYE loan plan.
Your student loans probably aren’t going anywhere soon. Although monthly payments can feel overwhelming, repayment plans like REPAYE can make your loan debt more manageable. If you’re feeling the strain of federal student debt, contact your lender to discuss your options or visit StudentLoans.gov to learn more.