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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