In December 2015, the Department of Education created REPAYE (Revised Pay As You Earn) as an extension of the current PAYE program. REPAYE was designed to remove some of the restrictions imposed by previous IDR plans while adding some additional benefits. In the REPAYE your monthly payment would be capped at 10% of your discretionary income, and offer loan forgiveness after 20 years of payments for undergraduate loans, and 25 years for graduate loans.
Qualifications for REPAYE
REPAYE is a federal repayment program and eligibility requires that you have Federal Direct student loans, Stafford or Graduate Plus loans. Parent Plus loans unfortunately do not qualify, and Direct Loans consolidate that include a Parent Plus loan would also not qualify. Private loans also do not qualify for this program. There are no loan origination date restrictions for eligibility as was previously the case with the PAYE plan. There are also no minimum income requirements.
*Note – If you have Stafford or FFEL loans they must be consolidated into the Direct Loan program to qualify. Any PLUS loans added into that consolidation would make the loans ineligible.
Benefits of the REPAYE plan
Under the REPAYE plan your payments would be capped at 10% of your discretionary income. This means that the payment should be very affordable for most people, and have a big impact specifically for those with a lower income. This is currently the lowest percentage of discretionary income required as a payment for any of the income driven repayment plans.
The REPAYE is also a qualifying repayment type for Public Service Loan Forgiveness(PSLF). One of the main reasons people fail to qualify for PSLF is that their loan payments are not in a qualifying payment type. REPAYE solves this program and makes your payment eligible.
Enrolling in the REPAYE also makes your loans eligible for loan forgiveness after 20 years if they are undergraduate loans, and in 25 years is they are graduate loans. If loan types have been combined in a consolidation, then it would be a 25 year forgiveness term.
A government subsidy is included which covers unpaid interest accrued each month for the first three years, and HALF the accruing interest afterward (this is on subsidized loans only. This can amount to many thousands of dollars being forgiven. Here is additional information on how interest forgiveness works.
Reasons To Avoid REPAYE
Restarting of Your Loan Forgiveness Term
If you are currently in a repayment plan that has forgiveness at the end of the term, enrolling into the REPAYE through a consolidation would restart your track to forgiveness.
Married Couples May Have Higher Payments than PAYE
If you are married, there is a major difference calculating your monthly payment between PAYE and REPAYE. In REPAYE your monthly payment will be based on both yourself and your spouses income, regardless if you file taxes joint or separately. This can have a significant impact on your payment. In the PAYE program the payment will only be based on your taxes, and not your spouses if filing separately. We high advise you do the math and see which one makes most sense for you.
Graduate Loans Extended Forgiveness Terms
Borrowers with graduate loans may want to stay in the PAYE program which offers forgiveness on the debt after 20 years instead of 25 in REPAYE. This information should be used in conjunction with the payment amount. It might make sense for you to have a smaller payment for 25 years in the REPAYE, than a larger payment for 20 years in the PAYE. There is no one size fits all here, and its important to do your research and calculations prior to enrolling into their program.
Payment Not Capped
One thing to note with REPAYE is that your payment amount is NOT capped at what your Standard repayment monthly repayment would be. This means that if your income gets high, your REPAYE payment could be higher than your standard repayment would have been.
Why was the REPAYE program introduced?
Date Restrictions Removed
One of the drawbacks of the PAYE program was that anyone who took out student loans before October 2007 was ineligible to participate. REPAYE removes that barrier completely. With REPAYE, there is no time requirement to participate. Whether you took out student loans 20 years ago or yesterday, you are now eligible for the REPAYE program.
Removal of Income Requirements
Borrowers no longer have to show that their income is low in comparison with their student loan debt to qualify for REPAYE.
Increasing Interest Forgiveness
in REPAYE they have expanded the amount of interest forgiveness as previously discussed above.
Tax Implication for Forgiven Loan Balance
Being enrolled in the REPAYE plan may end up resulting in loan forgiveness on any unpaid balance of the loan after 20-25 years of payments. The amount forgiven may be considered taxable income.
How do I get Enrolled?
If you have federal student loans, you can always enroll in any of the income-driven repayment plans by calling your loan servicer to help you or applying through the US Department of Education for free, or you can work with a credit counselor or hire a private company to assist you through the process.