On December 17, 2015, a new program from the U.S. Department of Education will go live that will provide yet another way to pay federal student loans that is income driven. The program is called REPAYE (the Revised Pay As You Earn plan), and it makes further changes to the Income Based Repayment (IBR) plan that can be helpful to many, but not all, student loan borrowers.
PAYE Helped Some, But Not All, Borrowers
President Obama had previously introduced the Pay As You Earn (PAYE) plan to provide expanded relief to the IBR plan by
- Capping payments at 10% of the borrower’s disposable income instead of 15%; and
- Reducing the repayment period from 25 years to 20 years
Although this was a great improvement on IBR, it came with restrictions since it was intended to help more recent student loan borrowers. To qualify,
- You could not have any student loan balances as of October 1, 2007; and
- You must have taken out a federal student loan on or after October 1, 2011
How REPAYE Changes This
The benefit of the REPAYE program is that it removes the restrictions and opens the program to all federal student loan borrowers with Stafford, Perkins, or Graduate PLUS loans. However, it is not for everyone, as there are some downsides to the program. Principally,
- For married borrowers, the income from the borrower and his or her spouse must be considered in calculating the payment, whereas borrowers filing separate returns from their spouses can use just their income in the calculation under PAYE and IBR.
- No matter your income, under IBR and PAYE the maximum payment is what you would pay under a 10 year fixed repayment plan (the default under the federal system; under REPAYE it would continue to track at 10% of your disposable income, and you could end up paying more.
- Under REPAYE, the maximum term of 20 years is only for undergraduate loans; graduate loans are at 25 years.
Be Careful When You Choose
These changes need to be seriously considered if you want to use an income driven repayment (IDR) plan for your loans. Each plan has its pros and cons, and each borrower is different. You should consult with a student loan professional before making any decisions.
If you live in southern New Jersey and are looking for a more affordable repayment plan, please feel free to call my office at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office to discuss your case.
If you would like more information about student loans, you can download my free book, I Graduated; Now What? A Guide to Dealing with Your Student Loans.
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