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Revised Pay As You Earn: Easy Guide

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Introduced in 2015, the Revised Pay As You Earn plan was designed to make its predecessor, the Pay As You Earn plan, accessible to more borrowers. Anyone can apply for the Revised Pay As You Earn repayment plan (except for parent borrowers). It usually doesn’t matter when you borrowed or what your income is — if you want to get your federal student loans on REPAYE, you can.

But like any other income-driven repayment plan, REPAYE has both pros and cons. Let’s take a closer look at the Revised Pay As You Earn repayment plan works so you can figure out if it’s right for you.

How Revised Pay As You Earn works

As an income-driven repayment plan, REPAYE bases your student loan payments on your income. It sets your payments at 10% of your discretionary income (this is calculated as the difference between your gross income and 150% of the poverty guideline).

If your monthly discretionary income is $2,500, for example, your student loan payment will be $250. The REPAYE plan also extends your loan terms to 20 years for undergraduate student loans and 25 years for graduate school loans.

If you still have a balance after this time, it will be forgiven. Note that any forgiven amount will be treated as taxable income, meaning you’ll have to pay taxes on the amount that gets forgiven.

What loans are eligible for REPAYE?

Most federal loans are eligible for REPAYE, with the exception of parent loans or consolidation loans that contain parent loans. Qualifying loans include,

  • Subsidized Direct loans
  • Unsubsidized Direct loans
  • Direct PLUS loans made to graduate students
  • Subsidized FFEL loans, if consolidated and not made to parents
  • Unsubsidized FFEL loans, if consolidated and not made to parents
  • FFEL PLUS loans made to graduate students, if consolidated
  • Perkins loans, if consolidated

Unlike some other income-driven repayment plans, it doesn’t matter when you borrowed.

Pros of REPAYE

So, what are some advantages of the REPAYE repayment plan? Here are the top four.

Limits your student loan payments to 10% of income

REPAYE has one of the lowest calculations for student loan payments at 10% of your income. Since you’re probably looking for the income-driven plan that will lower your payments the most, REPAYE could be it.

Forgives undergraduate student loans after 20 years

If you’re paying off undergraduate student loans and still have a balance after 20 years of repayment, the government will forgive it. As noted, the forgiven amount will be treated as taxable income (this is true for any income-driven repayment plan).

Doesn’t have an income requirement to qualify

REPAYE is one of the easiest plans to qualify for, since it doesn’t matter what your income is. Some other income-driven plans require “partial financial hardship” to qualify. But for REPAYE, it doesn’t matter what your financial situation is or when you borrowed your student loans.

That said, you do need to re-certify your income by the deadline ever year or you could get kicked off the plan.

Has a helpful interest subsidy

Finally, REPAYE has a helpful interest subsidy for student loan borrowers. On this plan, the government covers 100% of the interest that accrues on your subsidized student loans for three years and 50% of it after three years.

Plus, it covers 50% of accrued interest on your unsubsidized student loans throughout the repayment period. This interest subsidy could save you a lot of money over the life of your loan.

Cons of REPAYE

Along with the pros of REPAYE, consider the following potential cons.

Doesn’t cap your student loan payments if your income increases

While REPAYE sets your payment at 10% of your discretionary income, it doesn’t have any cap on that payment. So if you start making a lot more money, your payments will increase accordingly. They could even exceed the amount you’d pay on the standard 10-year plan.

Sets a longer repayment term for graduate student loans

On REPAYE, you’ll get a longer term for student loans from graduate school at 25 years. That’s five years longer than the term you’d get on the PAYE plan.

Always takes both spouses’ incomes into account

When you put your student loans on REPAYE, you’re probably looking to get a lower payment. But if you’re married, the REPAYE plan will calculate your payment based on both your and your spouse’s income — regardless of whether you file your taxes separately. This is different from the PAYE plan, which will only count your individual income if you file separately from your spouse.

Doesn’t limit capitalized interest

Finally, it’s worth noting that the REPAYE plan doesn’t place any limit on capitalized interest if you change repayment plans. When interest capitalizes, it gets added on to your principal balance. Your balance gets bigger, and you end up paying interest on top of interest.

There are a few events that trigger capitalization, and one is switching repayment plans. While some plans, like PAYE, limit the amount that can get capitalized after you switch plans, the REPAYE plan sets no such limit.

Who is the REPAYE plan best for?

So, given the pros and cons, who is the REPAYE repayment plan best for? Well, it’s a useful plan for anyone who wants to adjust monthly payments and can’t qualify for other plans, such as PAYE or IBR, because they lack a qualifying hardship or don’t meet other criteria.

It’s also useful if you don’t expect your income to increase significantly in the future (though if it does, you can keep making higher payments to pay off your debt faster).

It’s not as useful, however, for borrowers who are married or have graduate student loans. If either applies to you, it might be better to explore an alternative repayment plan.

How to apply for the Revised Pay As You Earn repayment plan

To apply for the REPAYE or another income-driven plan, head to StudentAid.gov and submit an Income-Driven Repayment Plan Request.

When you apply online, the form should select the income-driven plan that will give you the lowest payment on your student loans. You can also request a specific plan, such as REPAYE.

As you fill out the forms, you’ll need to provide documentation of your income. For extra guidance, reach out to your loan servicer to discuss your individual situation.

Alternative ways to get relief on your student loan payments

Besides Revised Pay As You Earn, there are several other student loan repayment plans that can adjust your monthly payment. These include,

  • Pay As You Earn
  • Income-Based Repayment
  • Income-Contingent Repayment
  • Extended repayment
  • Graduated repayment

You can also choose new repayment terms through refinancing your student loans with a bank, credit union, or online lender. Refinancing could save you money with a lower interest rate.

But refinancing federal loans turns them private, making them ineligible for income-driven repayment plans such as REPAYE. So make sure you’re comfortable turning your federal debt private before you explore refinancing.

Whatever you choose, learning about all your options will help you make an informed decision for your student loans.

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