Effective on December 16, 2015, the Revised Pay As You Earn (REPAYE) plan helps borrowers of federal student loans with a third income driven repayment option. In effect, it extends the benefits of the PAYE plan, but does have some downsides.
The PAYE plan modified the Income Based Repayment (IBR) plan by shortening the repayment period from 25 to 20 years and lowering the cap on monthly payments from 25 years to 20 years. In addition, you would never pay more per month than a 10 year fixed repayment plan.
But this deal is not available to everyone. Older borrowers are out of luck. In order to qualify, you must not have any outstanding federal student loan balances as of October 1, 2007, and have taken distribution on a student loan after October 1, 2011. In essence, this plan was for newer borrowers, those in school at the time the program was released.
How is REPAYE Different Than PAYE?
What REPAYE does is make PAYE available to everyone by removing these restrictions. But there are some downsides that need to be considered, as there are some differences between PAYE and REPAYE. They are:
- There is no cap on the monthly payment equal to the payment on a 10 year fixed repayment plan; it will always be 10% of your disposable income. So if your income rises to the point where you can pay more than that amount, you will be required to do so.
- If you are married, your spouse’s income must be included in the calculations. Under IBR and PAYE, married couples can file separate tax returns, and borrowers can use only their Adjusted Gross Income (AGI). Under PAYE, you cannot.
- The 20 year repayment period in REPAYE only applies to undergraduate loans; loans for professional schools (e.g. law or medicine) or graduate schools have a 25 year repayment period. Under PAYE (and IBR for loans taken out after July 1, 2014) the repayment period is 20 years for all of them.
The REPAYE plan can be helpful to some people, but not for everyone. Anyone considering it should consult with a student loan professional to see if it is right for them, as every situation is different.
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