How does Revised Pay As You Earn (REPAYE) work?

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Managing student loan payments along with your other debts and expenses can be a challenge. Thankfully, the federal government offers several income-driven repayment plans designed to help cash-strapped borrowers. These programs can make it easier for participating federal student loan borrowers to keep up with their debt. According to the Consumer Financial Protection Bureau (CFPB), borrowers enrolled in income-driven repayment plans are much less likely to fall behind on their student loan payments.

One of the newest income-driven repayment plans is known as Revised Pay As You Earn, or REPAYE. It’s worth considering if you’re having a hard time keeping up with the standard repayment schedule on your federal student loans, especially if you don’t qualify for other income-driven repayment plans at the moment.

What is Revised Pay As You Earn (REPAYE)?

Revised Pay As You Earn, introduced in 2015, is a type of income-driven repayment plan available to select federal student loan borrowers. With REPAYE, your monthly payment is typically 10 percent of your discretionary income. Discretionary income is based on the difference between your annual income and 150 percent of your state’s poverty guideline for your family size.

The REPAYE program also includes a unique interest subsidy feature. In the event that your payment is too low to cover your monthly interest charges on the loan, the Department of Education will temporarily pay those extra fees on subsidized loans. After three years, the subsidy decreases to cover half of any excess interest fees not covered by your monthly payment, but it’s still a nice perk. Unsubsidized loans may be eligible for a 50 percent interest subsidy from the first day your REPAYE plan begins.

In addition to potentially lower monthly payments and the attractive interest subsidy, REPAYE features a student loan forgiveness component as well. Any remaining balances for eligible undergraduate loans are wiped out after 20 years of REPAYE payments. For graduate loans, the timeframe extends to 25 years. Just keep in mind that the IRS may consider forgiven student loan debt to be taxable income unless you qualify for Public Service Student Loan Forgiveness. You can speak with a tax advisor for more information.

How do you qualify for REPAYE?

The Revised Pay As You Earn plan is available to any federal student loan borrower with Direct Loans — subsidized or unsubsidized. Student Direct PLUS Loans and Direct Consolidation Loans also fit into this category, but parent PLUS loans do not. In order to qualify, your student loans cannot be in a default status.

How to apply for REPAYE

To find out if you qualify for an income-driven repayment plan plan, including REPAYE, you need to begin with an application. You can submit your application via old-fashioned mail or online at StudentAid.gov. If you already participate in a different income-driven repayment plan and want to switch to REPAYE, you’ll need to visit the same website to apply.

In general, the application process takes around 10 minutes to complete online. Be sure to have the following information handy to make the process as smooth as possible:

  • Your FSA ID (the username and password that serves as your legal signature and lets you access Federal Student Aid’s online portals).
  • Personal information (address, phone numbers, email address, etc.).
  • Financial information (household income details).

REPAYE vs. other income-based repayment

Federal income-based repayment plans — REPAYE or otherwise — can help eligible borrowers reduce or cap student loan payments based on income. The Loan Simulator tool from Federal Student Aid can help you calculate your estimated monthly payments under multiple plans to help you find the most affordable repayment plan for your specific financial situation.

Of course, when you’re calculating your potential payments, it’s important to remember that REPAYE offers a superior interest subsidy compared with most other income-driven options. You should factor these potential savings into your decision.

Revised Pay As You Earn is also easier to qualify for than other income-based repayment plans. So while REPAYE isn’t right for everyone, it’s certainly worth considering if you are unable to modify your student loan payment arrangement using a different option.

How to determine if REPAYE is right for you

Revised Pay As You Earn may be a good choice if you fit into the following categories:

  • You’re single (and plan to remain single for the foreseeable future). If you’re married, your spouse’s income and federal student loan debt will affect the size of your monthly payment.
  • Your student loans are for undergraduate studies only. Graduate students have to make payments for an additional five years before they’re eligible for forgiveness of their remaining debt under REPAYE. Other income-based plans may offer shorter repayment terms.
  • You expect your income to rise in the future. With some income-based repayment plans, an increase in income could make you ineligible. That’s not the case with REPAYE. That said, under REPAYE, your payments could increase with your income.
  • You’re seeking Public Service Loan Forgiveness (PSLF). REPAYE payments will generally satisfy the 120 payments you need to make to qualify for PSLF.

It’s always wise to crunch the numbers before you consolidate, refinance or make any other changes to your student loans (such as signing up for REPAYE). Bankrate’s student loan calculator can help you gather the information you need to make an informed decision.

Other ways to lower your student loan payments

Aside from REPAYE and other federal income-based repayment plans, there are other ways to potentially reduce your student loan payments. For example, you may be able to take advantage of autopay discounts or seek student loan assistance from your employer, if available.

Another payment reduction option is refinancing your student loans with a private lender. Refinancing may save you money and lower your monthly payments if you can qualify for a lower interest rate on your new loan. But be aware that if you refinance federal student loans with a private lender, you’ll lose access to government benefits, such as income-based repayment options. Be sure to weigh your decision carefully before you make a permanent change.

Featured image by Dmytro Zinkevych of Shutterstock.

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