If you’re struggling to repay your federal student loans, you don’t have to resign yourself to pinching pennies to make your payments. Borrowers who qualify for the Revised Pay As You Earn (REPAYE) program can get their monthly payments capped based on their income.
REPAYE is one of several U.S. Department of Education’s income-driven repayment plans (IDR) that can help make loan repayment more manageable than the 10-year Standard Repayment Plan for federal student loans. What sets REPAYE apart is its generous interest benefit and more relaxed requirements for qualification.
Here’s what you should know:
- Who is eligible for the REPAYE program?
- When is remaining student loan debt forgiven?
- What about interest on your student loans?
- How does REPAYE work with Public Service Loan Forgiveness (PSLF)?
- REPAYE and additional student loan forgiveness programs
- Is REPAYE right for you?
What is Revised Pay As You Earn (REPAYE)?
REPAYE is a relatively new program. It was introduced in 2015 as a revision to the Education Department’s Pay As You Earn (PAYE) plan, an income-driven repayment plan that generally limits your payments to 10% of your discretionary income. REPAYE opened up eligibility to millions more borrowers because unlike PAYE, it’s open to borrowers who took out federal student loans before Oct. 1, 2011.
REPAYE came at a time when student loan debt was continuing to rise. Right now, there are more than 45 million Americans with more than $1.56 trillion in student loan debt, and those numbers increase each year.
REPAYE doesn’t just reduce monthly loan payments. The program also promises to forgive student debt if certain requirements are met. Here’s a closer look at how it works.
All Direct Loan borrowers are eligible for a REPAYE plan, regardless of when the money was borrowed. Other types of student loans that are consolidated into Direct Loans — like Stafford and FFEL Plus — also qualify.
However, Parent PLUS loans or consolidated loans that include Parent PLUS loans, are not eligible. As with other income-driven repayment plans, private loans and defaulted loans are also ineligible with the REPAYE program.
Still, some student loan borrowers might find REPAYE better suited to their needs than others. To see if REPAYE is the best repayment choice for you, consider the following:
How much are monthly payments?
With the REPAYE program, payments are capped at 10% of your discretionary income. Your discretionary income is calculated using your adjusted gross income minus 150% of the state poverty guidelines for your family size and state.
Although it’s possible to qualify for a monthly payment of $0, there is also no cap on payments — a major difference from the original PAYE and IBR programs. So if your income increases significantly, your payments could too.
Another potential drawback: If you’re married, your spouse’s income and existing federal student loan debt are factored in when determining the monthly payment. This is true even if you file taxes separately, although exceptions are made for domestic abuse victims.
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. In other words, if you only have undergraduate debt, you may want to consider PAYE because it has a shorter, 20- year repayment period.
Still, keep in mind that the IRS says forgiven student loans are taxable income. So if you qualify for student loan forgiveness under REPAYE, plan ahead and prepare for a potentially larger tax bill.
Any income-driven repayment plan has an important drawback: 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.
Here’s how it works: 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 Education Department will cover 50% of unpaid interest.The government also covers 50% of accrued interest charges on unsubsidized loans throughout the REPAYE repayment period.
If you decide to leave the REPAYE program — or no longer qualify because you failed to recertify your income by the annual deadline — interest will capitalize, which means you’ll owe any unpaid interest once you lose the federal interest subsidy. The interest will be added to your balance and you will have to repay that amount as part of your loan.
Still, if you are concerned about interest causing your loan balance to balloon to an unmanageable degree, REPAYE may be your best option. Its interest subsidy is more generous than other federal income-based repayment programs that offer assistance with interest.
Student loan borrowers often wonder exactly how REPAYE works with PSLF, the program that forgives federal student loan debt belonging to borrowers who work full-time for certain public service or nonprofit jobs. The good news is that you can be on the REPAYE program and still take advantage of PSLF, as you must have an income-based repayment plan to receive PSLF
REPAYE payments count toward the 120 payments that are required to qualify for PSLF. After that, your loans are erased.
If you work in the public or nonprofit sectors — and are currently under another type of repayment plan, like a 10-year Standard Repayment Plan — consider switching to an income-based repayment plan like REPAYE immediately. The reason? You’ll reach PSLF’s required 120 payments at the end of the Standard Repayment Plan’s 10-year payment period, and there will be no balance left for forgiveness.
PSLF covers a variety of employers, including AmeriCorps, Peace Corps and nonprofits involved in public interest law, health and disability services.
If you work for a qualifying employer and are also in a low-paying job, consider using REPAYE to manage your student loan debt and taking advantage of PSLF later.
In many cases, it’s possible to use REPAYE together with other student loan forgiveness programs. Once you get on a REPAYE plan to manage your monthly budget, research to see if you also qualify for other forgiveness programs.
Still, always double-check the requirements of the state and federal repayment programs to make sure that they are compatible with REPAYE.
In general, REPAYE is a good choice for:
- People who are single.
- Borrowers who are pursuing Public Service Loan Forgiveness (PSLF).
- Borrowers with only undergraduate school federal student debt.
- Borrowers who received loans before Oct. 1, 2011.
The good news is that 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 to pay down your student debt quickly is up to you.
Before deciding whether REPAYE is right for you, use a Revised Pay As You Earn calculator to get an idea of what your monthly payment might be with this repayment option. It’s also a good idea to take time to learn about other income-driven repayment plans and refinancing, and do what makes sense for your situation.
Marty Minchin contributed to this report.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
5 Important Disclosures for SoFi.
6 Important Disclosures for PenFed.
Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.