If you’ve borrowed federal student loans and are looking for a repayment plan that includes the possibility of student loan forgiveness, then you may want to consider opting into the Revised Pay As You Earn (REPAYE) plan.
Below we answer all of the most common questions about REPAYE so that you can make a more informed decision about whether or not it is right for you.
What is the Revised Pay As You Earn (REPAYE) Repayment Plan?
The Revised Pay As You Earn (REPAYE) plan is a form of income-driven student loan repayment. Borrowers who opt into this plan pay 10 percent of their discretionary income for a total of 20 or 25 years, depending on the specific type of loans that you have borrowed. After that period has passed, any remaining balance may be forgiven.
REPAYE is the spiritual successor to the Pay As You Earn (PAYE) repayment plan, which is available to a much smaller percentage of student loan borrowers.
What types of loans are eligible for the Revised Pay As You Earn (REPAYE) Repayment Plan?
The following types of student loans are eligible for repayment under REPAYE:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct Graduate PLUS Loans
- Direct Consolidation Loans
Direct Consolidation Loans that include loans made to parents are not eligible for repayment under this plan.
How long will repayment last?
Repayment under REPAYE lasts for 20 years, or 240 consecutive monthly payments, if all of the loans included were taken out for undergraduate study. If any of the loans included were taken out for professional or graduate study, then repayment lasts for 25 years, or 300 consecutive monthly payments. This does not include any periods of deferment or forbearance.
After this time, any outstanding balance will be forgiven.
How much will I pay?
Under REPAYE, your monthly payments will equal 10 percent of your discretionary income. Your payment amount is recalculated annually depending on your income and family size. If you are married, your spouse’s income will also be included in determining your payment amount, whether you file taxes jointly or individually. It’s possible that your monthly payments could be higher under this plan than what you would pay under Standard Repayment.
Because of the lower monthly payments and extended repayment term, you will ultimately pay more in interest under REPAYE than you would under either Standard or Graduated Repayment. Due to the forgiveness option, though, you would most likely pay less under this option than under the Extended Repayment plan.
That being said, you can always make additional payments in order to pay off your student loans faster, even under REPAYE. This can help you save money in the form of interest, and free you from your debt faster.
Can my loan be forgiven?
Yes, after either 20 or 25 years of on-time payments, any remaining balance will be forgiven under the Public Student Loan Forgiveness (PSLF) Program.
Pros and Cons of REPAYE
Pros of REPAYE:
- As long as you have qualifying federal student loans, you can opt into this repayment plan
- Payments are limited to 10 percent of your discretionary income
- Because payments are linked to your income, if your income decreases for whatever reason, your payments will decrease as well
- Any remaining balance can be forgiven after 20 or 25 years
Cons of REPAYE:
- Because of the longer repayment term, you will ultimately pay more in the form of interest than you would under either the Standard or Graduated Repayment plans
- You may owe taxes on any amount that has been forgiven
- It is possible that your monthly payments could be higher than it would be under Standard Repayment, depending on your income
- If you forget to update your income and family size each year, you may automatically be removed from the payment plan
How to Apply for Revised Pay As You Earn (REPAYE)
If you would like to opt into REPAYE, all you need to do is contact your student loan servicer. They will help you understand whether or not your loans are eligible for this repayment plan, and can answer any questions you may have. You can also apply by visiting this website.
Alternatives to the Revised Pay As You Earn (REPAYE) Repayment Plan
Not sure whether or not REPAYE is the right repayment plan for you? You have a number of other options to choose from. Depending on the specific types of loans that you have borrowed and your income, you may be eligible for:
- Standard Repayment
- Graduated Repayment
- Extended Repayment
- Pay as You Earn Repayment Plan (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Income-Sensitive Repayment