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

revised pay as you earn (repaye)

Are you struggling to repay your student loans?

You aren’t doomed to spend the next decade eating Ramen noodles and driving a clunker while you chip away at your payments.

The U.S. Department of Education (DOE) offers a few different income-driven repayment plan options to help make your loan repayment more manageable.

One of those options is the Revised Pay As You Earn (REPAYE) program. This program is designed to allow you to cap your monthly payments based on your income. This can help you improve your cash flow and get back on your feet if you’re struggling to afford your payments under the Standard Repayment Plan.

What is REPAYE?

The DOE already offered a Pay As You Earn plan, an income-driven repayment plan that generally limits your payments to 10 percent of your discretionary income. However, the plan was revised in 2015 (hence the acronym RE for “revised”) in an effort to open up eligibility to about five million more borrowers.

President Obama issued a presidential memorandum asking the DOE to share its plans for revising the Pay As You Earn plan to encompass more borrowers no later than December 2015. REPAYE came at a time when student loan debt was continuing to rise. Right now, there are more than 44 million Americans with more than $1.4 trillion in student loan debt.

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

Who is eligible for the REPAYE program?

All Direct Loan, Stafford, and Graduate PLUS borrowers are eligible for REPAYE, regardless of when the money was borrowed. Other types of student loans that are consolidated into Direct Loans can also qualify.

However, Parent PLUS loans, or consolidated loans that include Parent PLUS loans, are not eligible. Private loans and defaulted loans are ineligible as well.

How much are monthly payments?

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

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

Another potential drawback of the REPAYE program is that if you’re married, your spouse’s income and existing federal student loan debt are considered 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.

The IRS says forgiven student loans are taxable income, though. So if you qualify for student loan forgiveness under REPAYE, plan ahead and prepare for the potential tax bill you will end up with.

What about interest on your student loans?

Another concern with any income-driven plan is the fact that 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.

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 DOE will cover 50 percent of unpaid interest.

The government also covers 50 percent of accrued interest charges on unsubsidized loans throughout the REPAYE repayment period.

If you leave the REPAYE program, interest will capitalize. That means it will be added to your balance and you will have to repay that amount as part of your loan.

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

One of the questions that often comes up is how REPAYE works with PSLF. The good news is that you can be on the REPAYE program and still take advantage of PSLF.

REPAYE payments count toward the 120 payments required for PSLF, a program that forgives federal student loan debt belonging to borrowers who work full-time for certain public service or non-profit jobs.

Eligible employers include AmeriCorps, Peace Corps, non-profits involved in public interest law, and health and disability services.

If you work in a low-paying job that qualifies, you can use REPAYE to manage your student loan debt, and then take advantage of PSLF later.

REPAYE and additional student loan forgiveness programs

In many cases, it’s also possible to use REPAYE in conjunction with other student loan forgiveness programs. Once you get on REPAYE to manage your monthly budget, you can look to see what forgiveness programs you qualify for.

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?

The good news is 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 or not to pay down your student debt quickly is up to you.

Use a REPAYE calculator to get an idea of what your monthly payment would be under REPAYE to decide if it’s the right step to take. If you’re still unsure, learn more about the other income-driven repayment plans and refinancing and do what makes sense for your situation.

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Published in Income Based Repayment, Pay As You Earn (PAYE), Public Service Loan Forgiveness, Student Loan Repayment

  • William Connell

    I’m interested in learning how negative amortization will impact the borrower in the long term? Has anyone created a calculator to research this? Many assumptions will need to be made in this calculator including income growth and poverty level growth.
    Also, once on REPAYE what are the options to leave the program?
    Does the borrowers loan term re-start at 20/25 when enrolling in REPAYE regardless of how long they have been in payback status?

    • Hi William,

      Thanks for the really great questions.

      In terms of a calculator, I have not seen a public one released yet (we did get to preview some scenarios from the Dept. of Ed. related to negative amortization). However, we anticipate the Dept. of Ed. will update their Repayment Estimator here once REPAYE becomes available: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

      In terms of the number of years, we anticipate that payments to date before you switch would count. But I have not seen anything official regarding that at this time. Please stay tuned.

      Best,

      Jeffrey
      Student Loan Hero

  • William Connell

    Also, since the program has different interest forgiveness across Subsidized and Unsubsidized balances, how will REPAYE payments be apportioned?

  • Hi William,

    To be honest, I’m really not certain. That would be a better question to ask the Dept. of Ed. directly.

    Cheers,

    Jeffrey

  • Joe O

    The IRS does NOT count the amount forgiven as taxable income: “Note that loan amounts forgiven under the PSLF Program are not considered income by the Internal Revenue Service. Therefore, you will not have to pay federal income tax on the amount of your Direct Loans that is forgiven after you have made the 120 qualifying payments.”

    Straight from the horse’s mouth: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

    • Hi Joe,

      Thanks for the comment. You’re 100% right in terms of Public Loan Service Forgiveness (PSLF). Forgiveness under PSLF as well as Teacher Loan Forgiveness is not taxable.

      However, forgiveness under REPAYE and other income-driven plans after 20-25 years of payments IS taxable as income on the full amount forgiven.

      From the IRS: “Generally, if you are responsible for making loan payments, and the loan is canceled (forgiven), you must include the amount that was forgiven in your gross income for tax purposes.”

      Source: https://www.irs.gov/publications/p970/ch05.html

      Here’s more coverage on this in NYT: http://www.nytimes.com/2012/12/15/your-money/for-student-borrowers-a-tax-time-bomb.html

      Sorry for the confusion!

      Best,

      Jeffrey
      Student Loan Hero

  • Jennifer

    Currently I am on the Income Based Repayment plan, and when I called to renew my IBR they wanted me to switch to the new pay as you earn, I am so confused because I am not really sure what the difference between the two are and I just got married , but for this renewal I get to use my last years taxes and can claim single unmarried so my payment isn’t going to be higher than what it is now. But next year since when I renew I was planning on filing married but separate, and from what I read here that wont matter and they will still take my spouses income considered so that makes me not want to switch. Do you happen to know if the IBR will do that too and if so maybe it would be better to switch? They said the government will pay 100% of my interest that’s not being paid for the first 3 years but then tells me in order to switch plans my interest will capitalize and that’s 10,000.00 so to me it doesn’t seem worth the move. Any suggestions or advice would be appreciated…

  • Itsthegubermint

    I called Fedloan Servicing the other day and the rep suggested I switch from IBR to the revised Pay As You Earn (REPAYE). I looked online after the call to check out the details. It appears, as you stated, that REPAYE requires the borrower to report her/his spouse’s income, even if the borrower files married separately. However, there have been no changes to IBR, so filing married separately still allows the borrower to report only her/his income for purposes of calculating monthly payments. I was concerned about this because I’m supposed to get married later this year.

  • Jenny Wilson

    I’m not understanding WHAT interest they pay 50% of unpaid on. All of it? Subsidized only? It makes a significant impact on what plan I’ll switch too (Currently on IBR, planning on switch to PAYE but looking into REPAYE). I’ve looked everywhere and tried to ask my provider and can’t get an answer

    • Hey Jenny,

      Sorry it’s confusing. It’s a little complicated by its nature, unfortunately.

      Anyway, what I believe you’re referring to is any interest that accrues that the monthly payment doesn’t cover. For borrowers with lower incomes and/or very high student loan balances, their monthly payment might not cover all the interest that accrued that month as the payment amount is determined by their income.

      When this happens, the government pays for the interest the interest as following:

      First 3 years on REPAYE:
      – 100% of accrued interest on subsidized loans. 50% of unsubsidized loans.

      After 3 years on REPAYE:
      – 50% of accrued interest on both subsidized and unsubsidized (or the corresponding portion of a consolidated loan)

      I hope this helps with the explanation. If you have any other questions, let us know!

      Cheers,

      Jeffrey
      Student Loan Hero

      • Jenny Wilson

        Thanks Jeffrey,
        So any of my loans that have unsubsidized or unsubsidized in the name count? Those that are “Direct Plus Graduate” would not have 50% of the interest repaid?

        To figure out an idea of my forgiven amount in 25 years I would need to calculate the % of loans that are unsubsized/subsidized then figure out how much of my payment would go there vs the non sub/unsub to figure out how much would be paid?

      • Jenny Wilson

        Thanks Jeffret,
        I’m not sure if my reply posted before-
        So any of my loans that say “subsidized” or unsubsidized” will have 50% unpaid interest paid? If it says “direct plus” or something along those lines there won’t be any interest paid for by the government?

        • Hi Jenny,

          Yes, any loans that say “subsidized” or “unsubsidized” will have at least 50% of the unpaid interest covered (100% on subsidized on the first 3 years in REPAYE).

          PLUS loans should just be considered another form of unsubsidized loans, so this should also be covered the same as the ones specifically labeled “Unsubsidized.”

          Hope this helps. If you have other questions, let me know!

          Cheers,

          Jeffrey

  • Hi Jenny,

    I believe any federal loan will count and that any loan that’s not listed as “subsidized” is technically an unsubsidized loan.

    To get an idea on forgiveness, I’d try this calculator: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

    We’re working on our own version that’s not released yet, but stay tuned!

    Cheers,

    Jeffrey

    • Jenny Wilson

      That’s great news! I have been consolidating certain loans and getting things organized the last couple of months to switch from IBR to a better plan. I was told by a TON of people that work at my loan servicer that I would qualify for PAYE. I have a huge loan (veterinarian) and it was the first time I felt optimistic about it. I did lots of math, talked to to my tax person, did more math, talked to more people and then when I called yesterday to see why it hadn’t switched over yet they said they made an oops and I wasn’t qualified. If all loans have the 50% interest deal it makes my numbers a lot more manageable if I have to switch to REPAYE instead.
      I’ve used that calculator but feel like it very greatly over estimates income growth so don’t really trust it, hopefully I’m just being pessimistic 🙂

      • Glad to help, Jenny! I’d just check to make sure all your loans are covered by the interest subsidy before you decide based on that assumption. While I believe they are, please check with your servicer. The REPAYE program is so new that I don’t know all the ins and outs of it yet.

        Cheers,

        Jeffrey

  • Eddie Bowman

    I’m trying hard as hell to not default my loans. HELP

  • Rob Kreger

    I’m on the REPAYE plan, and as of right now my monthly payment is $0. Do payments of $0 count towards the number of payments you have to make before the loan is forgiven?

  • Hi Rob,

    Yes, if your monthly payment is designated as $0, you are considered to be making an on-time payment every month (even though it’s $0). So yes, this counts towards forgiveness.

    Best,

    Jeffrey

    • Kay

      Is the REPAYE and PAYE program the same in this regard? Under the PAYE program, if your monthly payment is designated as $0, are you considered to be making an on-time payment every month (even though it’s $0)?

  • Kat

    Hi, do US teachers who teach abroad (Mexico in this case) qualify for these programs? The peso to dollar exchange rate has basically cut incomes in half over the last year – do teachers earning abroad have any options?

  • Hi Kat,

    If you have federal student loans from the U.S. through the Dept. of Education, they would typically qualify for REPAYE.

    Does this answer your question? If not, let me know!

    Best,

    Jeffrey

  • Kate

    Jeff,
    Quick question. I am doing PSLF and have been paying under IBR for about 5 years. I was not previously eligible for PAYE because I have loans older than 2007. However, since the addition of REPAYE, I am now eligible for that plan. I want to make sure that I am paying the least but also that my forgiveness date is still in sight… Would you recommend switching to the REPAYE plan even though I am half way done with my 120 qualifying payments under PSLF? My loan servicer said that to switch I would need to go back to Standard Repayment (not possible as it is more than I make a month!) ask for a forbearance and then hopefully get switched to REPAYE. In order to do that, I would be missing 2-3 months under my PSLF but would eventually save about $100-150 a month…

  • Meg

    We’ve been through a tough and tragic decade but now are emerging on the other side. I’ve defaulted on my student loans and now don’t know what to do or where to start. I’m afraid to contact my lender as I don’t want to be garnished and jeopardize the stability that we have at the moment. We’ve been garnished in the past and were homeless. Can I use the repaye plan if I’m in default? Thank you!

  • Claudia

    I have been on the IBR plan for the past five years. If I switch to REPAYE, does the term of repayment start all over again in order to reach the 25 years and loan forgiveness or will the payments made in the past transfer to the new income-based plan?

    Thanks,
    Claudia

  • Hi Meg,

    I’m sorry to hear about your troubles. You may be able to use REPAYE, but you’ll have to get out of default first. Here’s a post with some guidance on options: https://studentloanhero.com/featured/preventing-and-dealing-with-student-loan-default/

    If there’s anything else I can do, let me know!

    Best,

    Jeffrey

  • Botzgeo

    As for the repaye program, it mentions that borrows will be required to include their spouses income regardless of filing status, joint or separate, unless the borrow has no means to adequately access their spouses income. What exactly does that mean? Im basically asking for what circumstances have allowed an individual to exclude their spouses income from their required contribution.
    Additionally, if the spouses income is being incorporated into the computation for amount owed, then would the spouse being in a qualifying PSLF type non-profit/government related job apply to the 120 qualifying payments?
    I.E. A vet working in the private world, not a non profit, with debt qualifying for the repaye, and the spouse being in the military and having no debt of their own relating to student loans.

  • Jody Sundstrom Miller

    How exactly to you apply for REPAYE to even see if you qualify?

  • william hyres

    I have spousal consolidation student loans from prior to 2006. Do I qualify for any of the changes made by president Obama? No I don’t. That’s right. People who were married, did the right thing and consolidated, are now in limbo and don’t qualify for any of the student debt relief or forgiveness programs Gee I wonder why,

  • william hyres

    I have spousal consolidation student loans from prior to 2006. Do I qualify for any of the changes made by president Obama? No I don’t. That’s right. People who were married, did the right thing and consolidated, are now in limbo and don’t qualify for any of the student debt relief or forgiveness programs Gee I wonder why,

  • G

    if I have consolidated with Nelnet am I still eligible for public service forgiveness and/or IBR???

  • nogoodnews

    I just spoke yesterday with the student loan people …. I’m moving from IBR to the repayee program and then laterback to IBR. That’s because on the REPAYEE program as a single person I get the best deal. But eventually I will get remarried and then I will want to go to back to IBR…. Because I want to continue filing my taxes separately I don’t want my spouses income account. And if you remain under the payee program your spouses income counts even if you file taxes separately … but not with IBR. Under IBR I can be married … file my taxes separately and get a really low student payment.

    I’m also under the public service loan program so I have nine years left to pay and after that my debt will be forgiven

    But you can Bounce, annually between any loan program you want as long as it’s under the approved income driven repayment (IDR) plan.

  • nogoodnews

    I would just put my loan in forbearance during the switch time