Most federal student loan borrowers are eligible for income-driven repayment (IDR) plans that help reduce your monthly payment amount. Under IDR, monthly student loan payments are capped at 10% to 20% of your discretionary income.
Out of the four different IDR plans, there’s one repayment plan that stands out and can save you a lot of money, and that’s the Revised Pay As You Earn (REPAYE) plan. In this guide, learn everything you need to know about REPAYE.
What’s Revised Pay As You Earn?
The Revised Pay As You Earn repayment plan, also called REPAYE, is a payment option under the umbrella of income-driven repayment. Under a REPAYE plan, monthly student loan payments are calculated as 10% of your discretionary income.
If your income is low (near the poverty guideline) or you’re unemployed, you might qualify for zero-dollar monthly payments while remaining in good standing on your loans.
To get an idea of what your monthly loan payments might be, you can check out our IBR calculator which compares payments across all IDR plans. Each year, you’ll need to report your income and family size. Based on your recertified information, your monthly payments might change from year to year.
Under the REPAYE program, your repayment term — or years of repayment — is 20 years if you’re paying undergraduate loans and 25 years if you’re repaying graduate loans.
The good news is under all IDR plans, including REPAYE, your loans are forgiven if you have a remaining loan balance left over at the end of your repayment term. If you make your student loan REPAYE payments for 20 years, whatever you still student loan debt you owe after that is forgiven.
Caveat with REPAYE loan forgiveness
Unlike student loan forgiveness under Public Service Loan Forgiveness (PSLF), the IRS views forgiven loans under this particular program as taxable income, though that is on pause until 2025. Once this provision is no longer available, that means you’ll pay taxes on the amount that is forgiven, so it’s important to be aware of this and stash away money so you’re not hit with a huge surprise bill from Uncle Sam.
Who’s eligible for Revised Pay As You Earn?
The REPAYE option is attractive as it has fewer eligibility requirements than some of the other IDR repayment plans. Any Federal Direct Loan borrower under the following plans qualifies for Revised Pay As You Earn student loans repayment plan:
- Subsidized Direct Loans
- Unsubsidized Direct Loans
- Direct Grad PLUS Loans
- Direct Consolidation Loans
Unfortunately, Parent PLUS Loans, consolidation loans paying back a Parent PLUS Loan, and loans that are in default don’t qualify for REPAYE.
Parent PLUS Loan borrowers only qualify for the Income-Contingent Repayment Plan after consolidating through a Direct Consolidation Loan. However, there’s also a double-consolidation loophole that parent borrowers can consider.
Additionally, only federal loans administered through the U.S. Department of Education qualify. If you have private student loans from a financial institution and not the federal government, you’re not eligible for this program.
If you have FFEL student loans instead of Direct Loans, you can combine loans using a Direct Consolidation Loan to qualify. Once you use a Direct Consolidation Loan, your loans are turned into Direct Loans. That’s one major loophole to qualify for REPAYE.
Consolidating merges your loans and leaves you with a weighted interest rate based on your original loan rates. The most important thing to know is that while you might qualify for REPAYE by consolidating, you end up forfeiting payments toward student loan forgiveness. This is a big deal if you’re interested in student loan forgiveness under PSLF or income-driven repayment.
What are the pros and cons of REPAYE?
If you want to go on an income-driven repayment plan, review all of your options. REPAYE has some attractive perks, but there are pros and cons.
- Payments are only 10% of discretionary income.
- Direct Loan borrowers qualify.
- Interest subsidies available.
- Forgiveness after 20 to 25 year repayment period.
- Parent PLUS Loan borrowers don’t qualify.
- You’ll pay more in interest over time.
- You may need to pay taxes on the forgiven amount.
- If you’re married, your loan servicer uses your income information and your spouse’s income details to calculate your monthly payment, regardless of your tax filing status.
The primary perk from this list is the interest repayment subsidy. Under REPAYE, borrowers have generous interest subsidies that can help make repayment more affordable.
If your monthly student loan payment doesn’t cover all the unpaid interest, REPAYE offers the following advantages:
- Interest that’s paid by the government on remaining subsidized loans is paid by the government for up to three years. After that period, half of the interest is covered for an additional three years.
- If you have unsubsidized loans, half of the remaining interest is paid by the government throughout the course of your student loan repayment.
This is a major perk that could potentially save you hundreds to thousands of dollars. It’s a good idea to utilize these benefits as much as possible until you’re ready to refinance your student loans. Refinancing is another way to lower your interest rate and the amount you pay toward student debt overall.
The main drawback with REPAYE is for married borrowers. As noted above, whether you file your tax return separately or jointly, both annual incomes are considered when determining the monthly student loan payment. The only exception here is if you’re separated or can’t access your spouse’s income.
How REPAYE differs from other IDR plans
REPAYE has more accessibility for student loan borrowers as all Direct Loan borrowers qualify. It’s similar to the Pay As You Earn student loans repayment plan in that monthly payments are capped at 10% of your discretionary income.
Under Income-Based Repayment (IBR) you might pay 10% to 15% of your income depending on when you borrowed your loans. Those under Income-Contingent Repayment (ICR) generally pay 20%.
The repayment term under REPAYE is fairly similar to the other IDR plans. Your term will be 20 years if you’re repaying undergraduate loans and 25 for graduate loans. The PAYE repayment term is a flat 20 years, while IBR is 20 to 25 years depending on when you borrowed and ICR is a flat 25 years.
Unlike REPAYE, under PAYE, IBR and ICR, if you file separate tax returns while married, your loan servicer will only use your income to calculate your monthly payment. However, if you file jointly under these repayment plans, your loan servicer uses both incomes.
The other repayment plans have different interest subsidies as well. Using the PAYE or IBR repayment plans, your interest on subsidized loans could be paid by the government for up to three years if your monthly payment doesn’t cover it.
Under these plans, you’re also on the hook for all interest on unsubsidized loans on top of the interest after the three-year period on your subsidized loans. The ICR repayment plan doesn’t offer an interest subsidy.
How to sign-up for REPAYE
If you’ve evaluated your income-driven repayment options and decided REPAYE is the right fit for you, talk to your loan servicer about your federal student loans and qualifying for this particular plan.
Additionally, you’ll need to submit an application first before enrolling in the repayment plan. You can fill out the Income-Driven Repayment Plan Request Form. The process should take about 10 minutes. You’ll need to submit income information and information about your family size, and then choose the REPAYE option.
Once approved and enrolled, you’ll make payments based on a new monthly amount. However, it’s important to note that you must recertify your income and family size info each year. You may need to provide info about your adjusted gross income (AGI) through tax returns of pay stubs.
The Bottom line
If you’re having difficulties making your student loan payments and have federal loans or want to pursue student loan forgiveness, REPAYE is a great option. The interest subsidies are the most generous compared to the other plans and you get your remaining balance forgiven at the end of the term.
The main caveat to watch out for is the income reporting requirement for married couples. Married couples should calculate whether REPAYE is still a good fit, based on this requirement. Otherwise, this repayment plan can help borrowers save money, pay off debt, and even get loan forgiveness later on.