Revised Pay As You Earn (REPAYE)

What Is the Revised Pay As You Earn (REPAYE) Plan?

The Revised Pay As You Earn (REPAYE) plan is an income-driven repayment (IDR) program for federal student loans. It calculates your monthly loan payment based on your income, family size, and the loan amount. Generally, your payment is set at 10% of your discretionary income. Any remaining loan balance may be forgiven after 20 or 25 years of qualifying payments, depending on the types of loans you have.

What Is the Revised Pay As You Earn (REPAYE) Plan?

The Revised Pay As You Earn (REPAYE) plan is an income-driven repayment option for federal student loans, designed to make payments more manageable by capping them at a percentage of your discretionary income.

Why Should I Care About the REPAYE Plan?

Navigating student loan repayment can feel like trying to solve a Rubik’s Cube blindfolded. The REPAYE plan is one of the tools that can help simplify the process, especially if you’re struggling to keep up with standard payments. It ties your monthly payment directly to your income and family size, offering a potential lifeline for those facing financial hardship.

What Is the REPAYE Plan?

The Revised Pay As You Earn (REPAYE) plan is an income-driven repayment (IDR) program for federal student loans. It calculates your monthly loan payment based on your income, family size, and the loan amount. Generally, your payment is set at 10% of your discretionary income. Any remaining loan balance may be forgiven after 20 or 25 years of qualifying payments, depending on the types of loans you have.

How Does the REPAYE Plan Work?

Think of the REPAYE plan as a flexible payment system for your federal student loans. Here’s how it generally works:

  1. Calculate Discretionary Income: Your discretionary income is the difference between your Adjusted Gross Income (AGI) and 150% of the poverty guideline for your family size and state.
  2. Determine Monthly Payment: Your monthly payment is typically 10% of your calculated discretionary income.
  3. Annual Recertification: You’ll need to recertify your income and family size annually. This means submitting updated financial information to ensure your payments are still accurate. If your income or family size changes, your payment will adjust accordingly.
  4. Potential Forgiveness: If you make all your required payments for 20 years (for loans disbursed mostly for undergraduate study) or 25 years (for loans disbursed mostly for graduate or professional study), any remaining loan balance may be forgiven.

What Loans Are Eligible for the REPAYE Plan?

Most federal student loans are eligible for the REPAYE plan, including:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans (for graduate or professional students)
  • Direct Consolidation Loans (that do not include Parent PLUS Loans)

However, Parent PLUS Loans that have been consolidated are not eligible for the REPAYE plan.

REPAYE vs. Other Income-Driven Repayment Plans

The REPAYE plan is one of several IDR plans available. Here’s how it stacks up against Income-Based Repayment (IBR), another popular IDR plan:

  • Payment Calculation: REPAYE generally sets payments at 10% of discretionary income, while IBR can be 10% or 15%, depending on when you first borrowed.
  • Recertification: Both require annual recertification.
  • Forgiveness Timeline: REPAYE offers forgiveness after 20 or 25 years. IBR offers forgiveness after 20 or 25 years, depending on the loan type and when you first borrowed.
  • Spousal Income: REPAYE always includes spousal income in its calculation if you file taxes jointly. IBR allows you to exclude spousal income if you file separately.

Who Might Benefit from the REPAYE Plan?

The REPAYE plan can be particularly helpful for:

  • Borrowers with High Debt and Lower Incomes: If your student loan debt is significantly higher than your income, REPAYE can lower your monthly payments considerably.
  • Public Service Loan Forgiveness (PSLF) Candidates: While REPAYE payments count towards PSLF, the 10% payment calculation and 20/25-year forgiveness timeline might make it less advantageous than other IDR plans if you qualify for PSLF sooner. However, it’s still a valid option.
  • Borrowers Expecting Income Growth: If you anticipate your income will increase in the future, your payments will also increase. This means you might pay off your loans faster and potentially pay less interest over time compared to a fixed payment plan.

Tips for Using the REPAYE Plan

  • Recertify Annually: Don’t miss your recertification deadline! Missing it can lead to higher payments and a loss of credit for payments made.
  • Consider Joint vs. Separate Filings: If you’re married, think carefully about whether filing jointly or separately will result in a lower payment under the REPAYE plan. Joint filers always have spousal income included.
  • Track Your Payments: Keep a record of all your payments to ensure you receive credit for them towards forgiveness.
  • Understand Interest: While your payments might be low, unpaid interest can still accrue. This means your loan balance might not decrease, or could even increase, until your income rises enough to cover the interest.

Common Misconceptions About REPAYE

  • “My payments will never go up.” Not true. Your payments are recalculated annually based on your current income and family size. If your income increases, so will your payment.
  • “All my debt will be forgiven automatically.” You must make qualifying payments for the full 20 or 25 years, and you must apply for forgiveness. The remaining balance is also taxable income in the year it’s forgiven.
  • “REPAYE is the best plan for everyone.” It depends on your individual financial situation, loan types, and future income expectations. It’s crucial to compare it with other repayment options.

Conclusion

The Revised Pay As You Earn (REPAYE) plan offers a flexible approach to managing federal student loan debt, adjusting payments based on your financial reality. By understanding how it works and recertifying annually, you can make informed decisions about your student loan repayment journey.

Sources:
StudentAid.gov – Revised Pay As You Earn (REPAYE) Plan
Federal Student Loan Repayment Plans

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