Student loan debt can be a crippling weight holding you down each month as you attempt to pay back your loans. For those that struggle to make their loan payments each month, there are a few different government programs you can take advantage of to lessen the burden. In this article, we will focus on REPAYE, but we will also compare it to the other student loan repayment plans and explain which one will work best for you.
What Is REPAYE? AKA Revised Pay as You Earn
Revised Pay As You Earn is a student loan repayment plan that helps those that are paying too much of their monthly discretionary income towards their student loans. The way it works is that your payment is a fixed amount each year based on your discretionary income level. Discretionary income is calculated by however much income you have that is over 150% of the federal poverty guideline. Your payment each month is then 10% of that number.
REPAYE does not put a cap on your payment amount, so as your income goes up, so do your payments. But the new monthly payment amount is only calculated once per year by your loan servicer. The federal poverty numbers are also fluid, so while your payments will vary each year, they will always be based on 10% of your discretionary income.
REPAYE also offers an interest subsidy that can be especially helpful for those with loans that have a higher interest rate. The REPAYE interest subsidy comes into play if your monthly payment does not cover the full amount of interest that accrues on the loan. When this happens, it is known as negative amortization, and the government will pay 50% of this amount.
Who Should Consider REPAYE?
Anyone who is struggling to make their student loan payments each month should consider REPAYE. The Revised Pay As You Earn program is most beneficial to single borrowers that are trying to pay back undergraduate loans. Those that are married or have a mix of graduate and undergraduate loans to pay back might want to consider a different option.
Who Should Not Consider REPAYE?
If you have a mix of graduate and undergraduate loans, it will take you an extra five years to pay off your total balance. Under REPAYE, the repayment period on your student loan debt extends from the standard 20 years to 25 years if you are paying back more than just undergraduate loans. Married couples who both earn an income and have loans to repay are also better off with a PAYE plan rather than REPAYE as long as they are eligible.
You should also think twice about the REPAYE plan if you are interested in paying off your loans as soon as possible for the least amount of money. REPAYE extends the repayment period of your student loans from the standard ten years up to 20 or 25 years. This means that while it is easier to make your monthly payments, users of these programs end up paying more in interest over the term of the loan than they otherwise would have.
Other Income-Driven Repayment Plans
The other income-driven repayment plans in addition to REPAYE are PAYE, IBR, and ICR.
To be eligible for the PAYE plan, you must have secured your loan on or after October 1, 2007. You must also show a partial financial hardship and must not have an outstanding federal loan. Under the PAYE plan, you pay 10% of your discretionary income each month, and the repayment period is 20 years.
PAYE vs. REPAYE
There are many key differences that separate PAYE from REPAYE plans. One of the main differences is that your spouse’s income does not count for PAYE plans if you file taxes separately. Another key difference is that the repayment period extends to 25 years for REPAYE plans if you have a mix of graduate and undergraduate loans.
There are also benefits shared by both plans. These include government interest subsidies and loan forgiveness after 25 years.
The Income-Based Repayment plan, or IBR, has two different repayment plans depending on when you took out your student loans. The original IBR plan differed from the other repayment plans in that it required a monthly payment of 15% of your discretionary income rather than a 10% monthly payment. The original IBR plan also had a longer repayment period of 25 years rather than 20 years.
Both the original and the new plan, which came into effect in 2014, are available to borrowers with a partial financial hardship. Those that took out their first loan on or after July 1, 2014 are eligible for the new IBR plan. This updated plan calls for 10% of your discretionary income each month, and the repayment period lasts for 20 years.
Starting in 1994, the Income-Contingent Repayment plan was the first repayment plan that was available to borrowers. All direct loan borrowers are eligible for ICR, and there is no partial financial hardship requirement. The repayment period for ICR is 25 years, and the amount you pay each month is contingent on your income level. The repayment amount is the lesser of either 20% of your discretionary income or a 12-year repayment amount multiplied by an income percentage factor. The income percentage factor for ICR plans changes every year and adjusts on a sliding scale depending on what your income is and whether you are single or married. For the details of the income percentage factor, you can head here.
Who Is Eligible?
The Revised Pay As You Earn plan is available to all federal student loan borrowers that have direct loans. This covers most federal loans that are made to students but does not cover loans made to parents. To be eligible for a REPAYE loan, you do not need to show a partial financial hardship.
Here are the eligible loans for a REPAYE plan:
- Direct Consolidation Loans
- Direct PLUS Loans (but not Direct PLUS loans made to parents)
- Direct Subsidized Loans and Direct Unsubsidized Loans
How to Apply
To enroll in the Revised Pay As You Earn plan, head to studentaid.gov and log in with your Federal Student Aid ID or make one if you do not already have one. Next, select your preferred repayment plan. You can also change your repayment plan at any time. To complete the application, you will have to enter details about your family size and your income, including your spouse’s income. You also have the option to mail in a completed form.