Several government-backed income-based payment plans are available to ease the monthly payment burden of those struggling to pay off Federal Student Loans, including Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), and Pay As You Earn (PAYE). To broaden the options for borrowers, a new version of the PAYE program has been added to the mix.
REPAYE, The New Student Loan Repayment Plan
Say hello to the Revised PAYE program, or REPAYE. As expected, REPAYE is very similar to PAYE, with monthly payments set to 10% of discretionary income and forgiveness of remaining student loan balances after a twenty-year repayment period. However, there are a few significant differences.
- Timing of Loan – To qualify for PAYE, you must have been a new borrower as of October 1, 2007, and received a loan disbursement by at least October 1, 2011. With REPAYE, there is no time constraint.
- Income Requirements – PAYE requires proof of a low income as compared to outstanding student debt. In other words, there is an economic qualifier. With REPAYE, it does not matter what debt to student loan balance ratio you have.
- Payment Caps – PAYE comes with a cap on potential monthly payments at 10% of a standard repayment plan. REPAYE does not have such a cap, so for the life of the loan your payments will be 10% of your discretionary income, regardless of how high your income goes. If your income goes up significantly, REPAYE could result in higher monthly payments. (This is why the government doesn’t require proof of low income to qualify – they come out ahead at higher incomes.)
- Payments for Married Couples – All other income-based repayment plans use combined spousal incomes for tax purposes only when you file jointly. REPAYE always uses combined income to set the monthly payment amount; thus, thanks to the above issue on payment caps, you may end up with a higher payment.
- Term Lengths – REPAYE requires a twenty-year repayment term for undergrad loans, but 25-year terms for anyone with at least one graduate loan.
In essence, REPAYE offers a PAYE-type of program to people who did not qualify for PAYE because of income constraints or other limitations. It could potentially allow those currently in IBR or ICR programs to convert to REPAYE and save on monthly payments. The tradeoff is removal of income caps and modifications of the income calculations. Those with older loans but persistently low incomes are served well by REPAYE.
To qualify for the REPAYE program, you must either have a Direct Loan — meaning that it came directly from the U.S. Government under the Direct Loan Program as opposed to Perkins Loans (where the school is the lender) or subsidized or unsubsidized Stafford Loans. You can apply for a Direct Consolidation Loan and convert those loans to direct loans that qualify for REPAYE, but you will lose any credit toward loan forgiveness. In other words, you will start out with a fresh twenty or 25-year repayment plan on the consolidated loan.
A consolidation loan may be worthwhile if you are willing to trade off the lower monthly payment for the extended time it will take to repay your loans. The further along you are on an existing repayment path, the less useful REPAYE becomes.
Any time you consider a new repayment option, it is best to run different scenarios to find out which payment plan is right for you. Before committing to a plan, use this repayment estimator to see which plan works for you.
If you plan to apply for Public Service Loan Forgiveness (PSLF), take that into account with your time-based calculations. PSLF allows loan forgiveness after ten years instead of 20/25 years for certain public service (and therefore typically low-paying) jobs. REPAYE loans qualify for PSLF and tend to suit borrowers planning for PSLF applications.
More information about REPAYE may be found at the US Department of Education website and other links within the Federal Student Aid section. Find out today if REPAYE can help you deal with burdensome monthly student loan payments. It is at least worth a simple and potentially money-saving calculation.