How REPAYE Can Help Student Borrowers
REPAYE, the newest income drive repayment program! For those eligible, some significant benefits were not previously available to many borrowers, such as:
- The potential for lower payments than IBR (Income Based Repayment Program)
- Earlier loan forgiveness for some than IBR
- Expanded eligibility versus PAYE (Pay as You Earn)
This new program is called REPAYE, and we think you’ll find the new benefits it offers to be very exciting!
The following will give you a basic summary of this program so you can see if it’s the right fit for you.
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.
Here is a basic overview of the REPAYE program:
- REPAYE is all-inclusive to those with direct federal student loans
- There are NO date restrictions for eligibility based on when you took out your loans
- There are NO minimum income requirements
- Monthly payments are always capped at 10% of your income
- Undergraduate student loans are forgiven after 20 years
- Graduate school loans are forgiven after 25 years
- Combined undergraduate and graduate student loans are forgiven after 25 years
- 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)
Basically, if you are filing Single or Married Joint, and you qualify for IBR, but not PAYE, you now are probably a fit for REPAYE. This program caps your monthly loan payment to 10% of total income, with no minimum income requirement. This monthly payment is calculated at 10% above your cost of living allowance for your AGI and Family Size, then divided by 12 months.
Since traditional IBR payments are calculated at 15% above your cost of living allowance, the REPAYE program payment would be 33% lower than IBR.
Most government plans that tie your monthly payment amount to your income require you first to demonstrate that you cannot afford the 10-year standard repayment plan. This is not a requirement for REPAYE. So regardless of your income, your payments will never exceed 10% of that figure.
Unlike PAYE, Date restrictions have also been eliminated, allowing many older borrowers to enjoy the advantages of REPAYE as well.
However, unlike the PAYE program, REPAYE treats undergraduate and graduate school student loans a little differently. While undergraduate loans are forgiven after only 20 years, graduate school loans are extended to 25 years. But, if you’re repaying even one student loan that you received as a graduate student, you will be repaying both the undergraduate and graduate loans for up to 25 years.
As you can see, the REPAYE program has removed as many restrictions as possible to now include the largest number of borrowers that were previously ineligible.
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?
REPAYE was introduced for three reasons:
- To remove the date restrictions that made many borrowers ineligible.
- To remove previous income level requirements
- To restrict the rapidly accumulating interest on previous IBR and PAYE participants after the first three years
Previous IBR borrowers who took out loans before 7/1/14 had their payment capped at 15% of total income for 25 years, while those who took out loans after that date were capped at 10% for 20 years. PAYE borrowers weren’t eligible if they took out loans before 10/1/07 but otherwise had all payments capped at 10% for 20 years…
Thankfully, REPAYE dramatically simplifies this process.
Who is eligible for the program?
REPAYE is available to all undergraduates and graduates school borrowers with direct federal student loans.
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.
There are only three restrictions for being eligible for the REPAYE program:
- You don’t have direct federal student loans
- Your income is too high, and the repayment plan rolls you into an ICR plan
- You have Parent Plus loans
As long as the three criteria above don’t apply to you, you are eligible for the REPAYE program.
In short, REPAYE offers numerous new benefits to student loan borrowers and can potentially help borrowers manage their student loans better than ever before. (Just remember that REPAYE, like all income-driven plans, still requires you to re-certify your income every year to remain in the program!)
We hope this has been a helpful guide to getting you familiar with the new REPAYE program so you can decide if it’s the right fit for you.
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.