REPAYE: What You Need to Know About the Revised Pay As You Earn Program

If you’re struggling to repay your federal student loans, you don’t have to resign yourself to pinching pennies to make your payments. Borrowers who qualify for the Revised Pay As You Earn (REPAYE) program can get their monthly payments capped based on their income.

REPAYE is one of several U.S. Department of Education’s income-driven repayment plans (IDR) that can help make loan repayment more manageable than the 10-year Standard Repayment Plan for federal student loans. What sets REPAYE apart is its generous interest benefit and more relaxed requirements for qualification.

Here’s what you should know:

What is Revised Pay As You Earn (REPAYE)?

REPAYE is a relatively new program. It was introduced in 2015 as a revision to the Education Department’s Pay As You Earn (PAYE) plan, an income-driven repayment plan that generally limits your payments to 10% of your discretionary income. REPAYE opened up eligibility to millions more borrowers because unlike PAYE, it’s open to borrowers who took out federal student loans before Oct. 1, 2011.

REPAYE came at a time when student loan debt was continuing to rise. Right now, there are more than 45 million Americans with more than $1.56 trillion in student loan debt, and those numbers increase each year.

REPAYE doesn’t just reduce monthly loan payments. The program also promises to forgive student debt if certain requirements are met. Here’s a closer look at how it works.

Who is eligible for the REPAYE program?

All Direct Loan borrowers are eligible for a REPAYE plan, regardless of when the money was borrowed. Other types of student loans that are consolidated into Direct Loans — like Stafford and FFEL Plus — also qualify.

However, Parent PLUS loans or consolidated loans that include Parent PLUS loans, are not eligible. As with other income-driven repayment plans, private loans and defaulted loans are also ineligible with the REPAYE program.

Still, some student loan borrowers might find REPAYE better suited to their needs than others. To see if REPAYE is the best repayment choice for you, consider the following:

How much are monthly payments?

With the REPAYE program, payments are capped at 10% of your discretionary income. Your discretionary income is calculated using your adjusted gross income minus 150% of the state poverty guidelines for your family size and state.

Although it’s possible to qualify for a monthly payment of $0, there is also no cap on payments — a major difference from the original PAYE and IBR programs. So if your income increases significantly, your payments could too.

Another potential drawback: If you’re married, your spouse’s income and existing federal student loan debt are factored in when determining the monthly payment. This is true even if you file taxes separately, although exceptions are made for domestic abuse victims.

When is remaining student loan debt forgiven?

Balances for undergraduate degree loans are forgiven after you make 20 years of eligible payments. Balances for graduate and professional degrees, or a combination of graduate and undergraduate degrees, are forgiven after 25 years of eligible payments. In other words, if you only have undergraduate debt, you may want to consider PAYE because it has a shorter, 20- year repayment period.

Still, keep in mind that the IRS says forgiven student loans are taxable income. So if you qualify for student loan forgiveness under REPAYE, plan ahead and prepare for a potentially larger tax bill.

What about interest on your student loans?

Any income-driven repayment plan has an important drawback: Your interest can keep accruing at a faster rate than you pay down your balance. With REPAYE, though, you have a bit of relief through the federal loan interest subsidy.

Here’s how it works: If your monthly payment is so low that it doesn’t cover the monthly interest charges, any excess interest on subsidized loans will be paid by the Department of Education for up to three years. After that time period, the Education Department will cover 50% of unpaid interest. The government also covers 50% of accrued interest charges on unsubsidized loans throughout the REPAYE repayment period.

If you decide to leave the REPAYE program — or no longer qualify because you failed to recertify your income by the annual deadline — interest will capitalize, which means you’ll owe any unpaid interest once you lose the federal interest subsidy. The interest will be added to your balance and you will have to repay that amount as part of your loan.

Still, if you are concerned about interest causing your loan balance to balloon to an unmanageable degree, REPAYE may be your best option. Its interest subsidy is more generous than other federal income-based repayment programs that offer assistance with interest.

How does REPAYE work with Public Service Loan Forgiveness (PSLF)?

Student loan borrowers often wonder exactly how REPAYE works with PSLF, the program that forgives federal student loan debt belonging to borrowers who work full-time for certain public service or nonprofit jobs. The good news is that you can be on the REPAYE program and still take advantage of PSLF, as you must have an income-based repayment plan to receive PSLF

REPAYE payments count toward the 120 payments that are required to qualify for PSLF. After that, your loans are erased.

If you work in the public or nonprofit sectors — and are currently under another type of repayment plan, like a 10-year Standard Repayment Plan — consider switching to an income-based repayment plan like REPAYE immediately. The reason? You’ll reach PSLF’s required 120 payments at the end of the Standard Repayment Plan’s 10-year payment period, and there will be no balance left for forgiveness.

PSLF covers a variety of employers, including AmeriCorps, Peace Corps and nonprofits involved in public interest law, health and disability services.

If you work for a qualifying employer and are also in a low-paying job, consider using REPAYE to manage your student loan debt and taking advantage of PSLF later.

REPAYE and additional student loan forgiveness programs

In many cases, it’s possible to use REPAYE together with other student loan forgiveness programs. Once you get on a REPAYE plan to manage your monthly budget, research to see if you also qualify for other forgiveness programs.

Still, always double-check the requirements of the state and federal repayment programs to make sure that they are compatible with REPAYE.

Is REPAYE right for you?

In general, REPAYE is a good choice for:

• People who are single.
• Borrowers who are pursuing Public Service Loan Forgiveness (PSLF).
• Borrowers with only undergraduate school federal student debt.
• Borrowers who received loans before Oct. 1, 2011.

The good news is that once you’re on REPAYE, you don’t have to stick with it forever. You can pay off your student loans faster if you aren’t comfortable with debt. But deciding whether to pay down your student debt quickly is up to you.

Before deciding whether REPAYE is right for you, use a Revised Pay As You Earn calculator to get an idea of what your monthly payment might be with this repayment option. It’s also a good idea to take time to learn about other income-driven repayment plans and refinancing, and do what makes sense for your situation.