The new student loan repayment plan: REPAYE

Monday, December 21, 2015

On December 17, the U.S. Department of Education began offering a new student loan repayment plan called Revised Pay As You Earn, or REPAYE. REPAYE is an extension of the existing Pay As You Earn (PAYE) income-driven repayment plan, which caps your monthly student loan payments at 10 percent of your income.

REPAYE also caps borrowers’ monthly bills to 10 percent of their income and forgives the debt after 20 years of payment (25 for grad school loans). Up until now, those terms were only available for people with especially low income relative to their debt and who took out their loans after 2007. The Obama administration has been working on opening the plan to anyone with Direct federal loans, regardless of their income or when they borrowed. It’s estimated that nearly five million borrowers who were previously shut out of income-driven plans, will now be eligible for lower monthly payments under REPAYE.

The government's income-driven plans, like PAYE and REPAYE, are designed to help you avoid defaulting on your federal student loans (which can severely impact your credit rating) by decreasing your monthly payments. However, these plans are not for everyone. Here's what you should know:

Grads of all income levels can participate in REPAYE

REPAYE removes the requirement to prove that a repayment plan is unaffordable for you. No matter how much you make annually, your payments will never be more than 10 percent of your income (your family size is also considered in the monthly payment).

Like the other repayment plans, only direct loans qualify for REPAYE. You can consolidate other types, like Perkins or Federal Family Education Loans, into a direct consolidation loan to make them eligible. Be sure to weigh the pros and cons of consolidation before you take that step.

Your eligibility doesn’t depend on the year you borrowed

There are no time requirements to participate under the REPAYE plan and everyone receives the same benefit (10 percent of your income), regardless of the year you took out your loan(s).

Your student loans will be forgiven after 25 years

REPAYE has different forgiveness timelines for undergraduate and graduate student borrowers: If you took out loans for grad school, all of your loans will be forgiven after 25 years. If you only have undergrad loans, those loans will be forgiven after 20 years.

Remember: Borrowers who work in a public service job can have the remainder of their loans canceled after just 10 years through Public Service Loan Forgiveness. Perkins loans also offer loan cancellation programs.

Your marital status matters

REPAYE uses the combined income of you and your spouse to set your monthly payment amount, regardless of whether you file a joint tax return or separate returns. This could increase your monthly payment amount.

More information

For more information on REPAYE, visit the Department of Education’s website.

For more information on income-driven repayment plans, read the Department of Education’s student aid FAQs.