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

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Revised Pay As You Earn (REPAYE) is a type of federal income-driven repayment plan for student loans. Through this program, borrowers pay a percentage of something known as their “discretionary income” for 20 to 25 years, at which point any remaining loan balances are wiped away.

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. If you’re curious about how REPAYE works and whether income-based repayment is for you, keep reading to learn more.

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, and you’ll make payments for 20 to 25 years. At this time, your remaining loan balance is forgiven.

The following types of student loans are eligible for REPAYE:

  • Direct Subsidized Loans.
  • Direct Unsubsidized Loans.
  • Direct PLUS Loans made to graduate or professional students.
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents.

You can also repay the following types of student loans under REPAYE if you consolidate them first:

  • Subsidized Federal Stafford Loans (from the FFEL Program).
  • Unsubsidized Federal Stafford Loans (from the FFEL Program).
  • FFEL PLUS Loans made to graduate or professional students.
  • FFEL Consolidation Loans that did not repay any PLUS loans made to parents.
  • Federal Perkins Loans.

How does REPAYE work?

Under REPAYE, your monthly payment is always based on income and family size. This means that if your income increases over time, your payment will also increase along with it.

Generally speaking, borrowers on REPAYE make a payment that is equal to 10 percent of their discretionary income for 20 years for undergraduate loans or 25 years for graduate loans, at which point remaining loan balances are forgiven. Discretionary income is based on the difference between your annual income and 150 percent of your state’s poverty guideline for your family size. Unlike other types of income-driven repayment plans, REPAYE uses both your income and your spouse’s income to calculate your monthly payment, regardless of whether you file joint or separate tax returns.

The REPAYE program also includes a unique interest subsidy feature. In the event that your payment is too low to cover the monthly interest charges on your loan, the Department of Education will pay those extra fees on subsidized loans for three years. 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 for the entirety of your REPAYE plan.

Who REPAYE is best for

Revised Pay As You Earn (REPAYE) may be a good choice if you’re single and plan to stay that way, at least for now. This is due to the fact that your spouse’s income could affect the size of your monthly payment in a negative way. REPAYE is also a good option for borrowers who have undergraduate student debt, since remaining balances on undergraduate debt are forgiven after 20 years instead of the 25 required for graduate student debt.

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). A student loan calculator can help you gather the information you need to make an informed decision.

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 mail or on the Federal Student Aid website. Alternatively, you can contact your loan servicer directly to ask about your options. 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. 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 number, email address, etc.).
  • Financial information (household income details).

There is no fee to complete an application for any income-driven repayment plan, including REPAYE.

Will President Biden change income-driven repayment plans?

President Biden has proposed some changes to income-driven repayment plans, which could help borrowers pay less each month and more easily access income-driven repayment plans. Specifically, the Biden administration has suggested the following changes for income-driven repayment plans:

  • Borrowers with federal student loans would automatically be enrolled in an income-driven repayment plan, although they could unenroll if they preferred.
  • Borrowers who earn less than $25,000 per year would not owe any interest or payments on their undergraduate federal student loans.
  • Borrowers who earn more than $25,000 would pay 5 percent of their discretionary income over $25,000 toward their loans for 20 years, at which point their remaining balances would be forgiven.
  • Forgiven debt would not be taxed.

These revisions could ultimately make it easier for borrowers to see some of their student loan debt forgiven, since income-driven programs have historically been poorly advertised and managed, and few borrowers have seen forgiveness through the program. While it’s unclear when these proposals could take shape, the Department of Education has already laid the groundwork by making all student loan forgiveness tax-free through 2025.

Alternatives to REPAYE

In addition to REPAYE, borrowers should take the time to explore other methods of lowering student loan payments. These include:

  • Pay As You Earn (PAYE) Plan: This program typically has borrowers pay 10 percent of their discretionary income for 20 years before forgiving remaining loan balances. Since REPAYE always takes a spouse’s income into account no matter how taxes are filed, PAYE can be a better option for married couples who are both bringing in an income and willing to file taxes separately.
  • Income-Based Repayment (IBR) Plan: If you’re a new borrower on or after July 1, 2014, you pay 10 percent of your discretionary income for 20 years before having remaining balances forgiven. If you took out loans before July 1, 2014, you pay 15 percent of your discretionary income for 25 years before having remaining balances forgiven.
  • Income-Contingent Repayment (ICR) Plan: Income-contingent repayment asks you to pay 20 percent of your discretionary income or “what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.” You pay this amount for 25 years, at which point your remaining balances are forgiven.
  • Student loan refinancing: Refinancing your student loans with a private lender may save you money and lower your monthly payments if you can qualify for a lower interest rate on your new loan. However, this is typically only a good choice for private loans, since refinancing your federal student loans will cause you to lose federal benefits.

Next steps

As you prepare to change up your student loan repayment plan, compare all of the different options available to you, and speak to your loan servicer about which plan it recommends. There’s no right or wrong way to repay your student loans, but some options may be easier, faster or less costly than others.

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Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson began her career working in the funeral industry, which may make you wonder why she works in personal finance now. Yet, the funeral industry taught the author everything she needs to know about the value of one's money and time. Johnson left the mortuary business a decade ago in order to explore her passion for personal finance and travel the world, and since then, she and her husband have built a debt-free lifestyle that has them on the path to retire very wealthy in their 40s. Holly's love of budgeting also led to the creation of her debt payoff book, “Zero Down Your Debt: Reclaim Your Income and Build a Life You’ll Love."
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