Paying off your student loans can feel like a drag and a never-ending ritual, but it doesn’t always have to be.
As a way to help student loan borrowers that can’t afford their monthly student loan payments, the U.S. Department of Education offers a program called income-driven repayment.
The income-driven repayment program offers four separate plans, and one of them is called the Revised Pay As You Earn (REPAYE) plan.
The Revised Pay As You Earn (REPAYE) plan is designed to allow you to cap your monthly payments based on your income. If you can’t afford your monthly payments through the Standard Payment Plan (10 year repayment), REPAYE can be worth a look.
What is REPAYE?
The Department of Education (DOE) has four income-driven repayment plans where your income determines your monthly payment instead of your payment being determined by how much you owe. One of the best plans is Pay As You Earn (PAYE). However, eligibility is quite narrow and not many borrowers are able to qualify.
As a spin-off of the Pay As You Earn (PAYE) plan, which was established in 2011, the Revised Pay As You Earn (REPAYE) plan was introduced in 2015 as part of President Obama’s Student Loan Forgiveness Program. This revised version is an attempt to open up the program to about five million more potential applicants, allowing more borrowers to benefit from student loan forgiveness.
Who is Eligible for REPAYE?
Rather than the narrow focus on eligible loans through the PAYE program, all Direct Federal student loans have the option to qualify for the REPAYE plan. This includes:
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS loans made to students
- Direct Consolidation Loans
If you have a Parent PLUS loan or a consolidated loan that includes a Parent PLUS loan, you won’t qualify for REPAYE. Also, it’s important to note that if you’ve defaulted on a loan or have a private loan, you won’t be eligible for any of the four income-driven repayment (IDR) plans, either.
How Does REPAYE Calculate your Monthly Student Loan Payments?
Working in much the same way as the previous PAYE program does, REPAYE calculates your monthly student loan payment based on your income, family size, and where you live. Unlike the PAYE program, REPAYE does not cap your payment at 10 percent of your discretionary income.
Although you may qualify for a $0 monthly payment, because there’s no cap, your monthly payment may end up higher than under the Standard Repayment Plan. As a significant change from the original PAYE and Income-Based Repayment (IBR), your monthly payment may increase substantially depending on how much your income goes up as you advance your career.
To get an idea of what your monthly payment may look like, enter your income, family size and other information into DollarGeek’s REPAYE Calculator.
REPAYE and Public Service Loan Forgiveness (PSLF)
The Public Service Loan Forgiveness (PSLF) option is separate and distinct from the Income-Driven Repayment (IDR) plans. Even so, if you’re working toward PSLF, you may still benefit from REPAYE.
Anyone working in a qualifying public service job should enroll in Public Service Loan Forgiveness (PSLF). However, to receive any loan forgiveness under that program, you must make most of your payments through one of the four income-driven plans.
With the strict qualifications on the other three income-driven repayment plans, which are Income-Based Repayment (IBR), Pay As You Earn (PAYE) or the Income-Contingent Repayment Plan (ICR), enrolling in REPAYE may be your only option.
Pros of REPAYE
The best part of REPAYE is that you don’t have to be a new borrower to qualify. With the original PAYE program, participants are limited to those who took out loans on or after October 1, 2007. Now, everyone is eligible no matter when they took out your student loans.
Other benefits include:
- Your monthly payments are based on your income
- Subsidized loans won’t accumulate interest
- Loan forgiveness is an option at 20 years
- You could qualify for loan forgiveness in as little as 10 years with PSLF
The advantages of REPAYE are significant, especially considering you aren’t required to demonstrate a partial financial hardship to qualify. No matter if your loan debt is big or small, it could help you if you’re struggling with your monthly payments.
Cons of REPAYE
As with PAYE, you’re required to submit annual income verification and proof of family-size to remain on the REPAYE program. Plus, there’s no cap on how much your monthly payments are, which means if there’s a huge jump in your income, your payment will jump, too.
It could also end up costing you more money, since stretching your payments out over a longer term to reduce the amount of your monthly obligation will significantly increase the interest you pay over time.
Perhaps the biggest downside of REPAYE is that the IRS requires you to count any amount of your student loan forgiveness as taxable income. But that is down the road, you will not be eligible for forgiveness under the REPAYE program until you’ve made 20 years of payments under the plan. The remaining amount left to pay on your loan is what would be forgiven and taxed. Though this may not cause everyone to have a substantial tax bill, it’s certainly something to keep in mind.
DollarGeek’s Final Thoughts
Overall, REPAYE is an excellent option to help reduce your burden of student loan payments. It also works well alongside the Public Service Loan Forgiveness (PSLF) program. Though, if you’re unsure whether REPAYE is right for you, learning about other consolidation and refinancing options will help you make the best choice.