What Is REPAYE and How Do You Apply?

FT Contributor
A graduation cap sits on top of a roll on $100 bills, symbolizing student loan payment.
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Revised Pay As You Earn, also known as REPAYE, is a type of income-driven repayment (IDR) plan that caps monthly payments on federal student loans at 10% of discretionary income. Any outstanding balance gets forgiven after 20 years (or 25 years in some cases). REPAYE does not, however, work for private student loans.

Initially, the Department of Education offered the Pay As You Earn (PAYE) repayment plan. This original income-driven repayment plan also capped payments at 10% of discretionary income. In 2015, however, PAYE got revised so that more people could qualify. Because of qualification changes, five million additional people could be eligible for this revised PAYE, or REPAYE.

At that time, student loan debt was on a meteoric rise, and the Obama administration was looking for a solution to the problem. President Obama issued a presidential memorandum to the Department of Education, asking it to come up with a plan for revising PAYE.

REPAYE is a suitable option if you aren’t married, you didn’t take out loans for grad school, you’re not eligible for other income-driven repayment plans, and you don’t expect your income to go up by much over time.

Who Is Eligible for REPAYE?

If you have a Stafford, Direct, or Graduate PLUS loan, then you are eligible for REPAYE. You also will not qualify if you have private student loans. REPAYE plans only cover federal loans.

The most significant difference between the original PAYE plans and the newer REPAYE ones has to do with time limitations. PAYE plans have eligibility requirements related to the date of your loan. If your loan disbursement took place before 2011, you might not be eligible, and you can only consolidate loans that date back to 2007.

REPAYE does not have such restrictions. You can also qualify for REPAYE if you consolidated your other federal student loans into a Direct Loan.

People who have Parent PLUS loans do not qualify, and the same applies even if you have consolidated loans that include Parent PLUS loans.

How Are Payments Calculated Under REPAYE?

REPAYE limits your payments to no more than 10% of your discretionary income. It may seem like a challenge to calculate discretionary income, but the equations are quite simple.

To get your discretionary income, you should multiply the poverty line of your state by 1.5 and subtract the result from your household income. Poverty line amounts differ from state to state and also depend on the size of your household.

For example, in the state of New York, the poverty line for a single person (household of one) is $12,760, according to the Department of Health & Human Services’ Poverty Guidelines.

If, for example, you are a single New York resident with $20,000 in annual income, this is how you calculate your discretionary income:

  • Multiply the poverty line by 1.5 ($12,760 times 1.5 equals $19,140);
  • Now subtract the result from your income ($20,000 minus $19,140 equals $860).

Your discretionary income is $860 for the year. REPAYE plans cap payments at 10% of this amount, so you are going to pay $86 annually, or $7.17 monthly.

Other Factors in REPAYE Payment Calculations

If you are below the poverty line, you could hypothetically have $0 in discretionary spending. However, there is also no upper limit on payments. If your income went up significantly, then your REPAYE payments could also increase. This rise could be a problem if your REPAYE payments become higher than the amounts for a 10-year Standard Repayment plan.

Your spouse’s income and their student loan obligations can also factor into your REPAYE payment amounts.

The easiest way to calculate both your eligibility for REPAYE and what monthly payments you can expect is to use the online REPAYE calculator provided by the Department of Education.

Benefits of REPAYE

Like PAYE, one of the main benefits of REPAYE is that loan installments are never more than 10% of your discretionary income. Payments will always be manageable, and you can potentially get a break if you suffer a temporary financial setback.

On the other hand, if your income rises as your career progresses, you could end up making much higher monthly payments. The same issue could come up if you get married because your spouse’s income would then become part of the household income equation.

Loans originating before 2007 or consolidated before 2011 are not eligible for PAYE plans. These time restrictions do not apply to REPAYE plans, however, so more people qualify for REPAYE.

REPAYE and Student Loan Forgiveness

Another benefit of REPAYE is the potential for student loan forgiveness. To qualify, you need to make on-time payments every month. If you only have loans for an undergraduate degree, the balance gets forgiven after 20 years. If you have graduate degree loans or a mix of graduate and undergraduate loans, you are eligible for loan forgiveness after 25 years.

REPAYE also works with Public Service Loan Forgiveness (PSLF). The PSLF provides loan forgiveness for borrowers who are full-time employees of specific public service organizations and nonprofits. People in qualifying jobs need to make 120 on-time payments. If you qualify for PSLF along with REPAYE, loan forgiveness takes 10 years instead of 20.

REPAYE Interest Subsidy

Another benefit involves interest payments. REPAYE users can qualify for a federal loan interest subsidy. If the required monthly payment is so low that it doesn’t cover the interest on the loan, the Department of Education covers all the excess interest (on subsidized loans only). They will pay the excess interest for three years and 50% of any uncovered interest after that. They will also cover 50% of the unpaid interest on unsubsidized loans for the full repayment period.

There is one catch, however. If you leave the REPAYE plan, the interest capitalizes, which means it will get added to your balance. As part of the balance, it also accrues interest. If that happens, you have to pay interest on your interest.

How to Apply for REPAYE

You can apply for REPAYE online or via mail. The first step is to visit the Department of Education’s Federal Student Aid site to download an income-driven repayment request. You complete it and mail it to your student loan servicer. The most convenient option, however, is to apply online via the same site.

You start the process by visiting the Student Loans portal and logging in with your Federal Student Aid ID. You then select the income-driven repayment plan request. You can choose a “Demo” application to help figure out what documents you will need for the paperwork. If you qualify for multiple IDRs, the application system will automatically give you the plan that has the lowest payment. You can manually choose REPAYE if you want.

Is REPAYE Right for You?

REPAYE may be the best option if you have a low income, are single, have a household income that you do not expect to change, and do not have graduate school loan debt.

REPAYE plans, however, have extended payback periods, so they may not be the best option if you want to pay off your student loans quickly or if you expect your income to increase significantly during the payback period.

One of the most attractive features of REPAYE is the potential for loan forgiveness. The government offers graduated repayment plans and extended repayment plans that are not tied to income. These options could be advantageous for some borrowers, but they do not come with the potential of loan forgiveness.  

If you don’t want an income-driven repayment plan altogether, you can opt for other federal plans that don’t rely on your income, such as graduated repayment plans and extended repayment plans. Note, however, that neither of these offer loan forgiveness, and you may end up paying more interest.

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