How does Revised Pay As You Earn (REPAYE) work?

Revised Pay As You Earn (REPAYE) is an income-driven repayment plan available for federal student loans. This program caps monthly payments at a percentage of the borrower’s discreionary income, collecting payments for 20 to 25 years.

Once the repayment period is up, any remaining loan balance is zeroed out. Borrowers who qualify for REPAYE may find that their loan payments are more manageable under this plan, but is important to understand the nuances, pros and cons of participating before you apply.

What is Revised Pay As You Earn (REPAYE)?

Introduced in 2015, Revised Pay As You Earn is a type of income-driven repayment plan available to select federal student loan borrowers. With REPAYE, your monthly payment is typically 10 percent of your discretionary income. You’ll make payments for 20 years if you borrowed for undergraduate study or 25 years if you borrowed for graduate study. At the end of that timeline, your remaining loan balance will be forgiven.

Under REPAYE, your monthly payment is always based on income and family size. This means that if your income increases over time, your payment will also increase along with it. For REPAYE, discretionary income is based on the difference between your annual income and 150 percent of your state’s poverty guidelines for your family size. Unlike other types of income-driven repayment plans, REPAYE uses both your income and your spouse’s income to calculate your monthly payment, regardless of whether you file joint or separate tax returns.

The REPAYE program also includes a unique interest subsidy feature. In the event that your payment is too low to cover the monthly interest charged on your loan, the Department of Education will pay those extra fees on subsidized loans for three years. After three years, the subsidy decreases to cover half of any excess interest fees not covered by your monthly payment. Unsubsidized loans may be eligible for a 50 percent interest subsidy for the entirety of your REPAYE term.

Who REPAYE is best for

Revised Pay As You Earn (REPAYE) may be a good choice if you’re single and plan to stay that way, at least for now. This is due to the fact that a spouse’s income could affect the size of your monthly payment in a negative way. REPAYE is also a good option for borrowers who have undergraduate student debt since the remaining balances on undergraduate debt are forgiven after 20 years instead of the 25 required for graduate student debt.

It’s always wise to crunch the numbers before you consolidate, refinance or make any other changes to your student loans (such as signing up for REPAYE). A student loan calculator can help you gather the information you need to make an informed decision.

How to qualify for REPAYE

To qualify for REPAYE, you must have student loans that are not currently in default and that are part of the federal Direct Loan program, whether on their own or through consolidation. Parents are not able to benefit from REPAYE, even if they consolidate parent PLUS loans.

The following types of student loans are eligible for REPAYE:

• Direct Subsidized Loans.
• Direct Unsubsidized Loans.
• Direct PLUS Loans made to graduate or professional students.
• Direct Consolidation Loans that do not include parent PLUS loans.

You can also repay the following types of student loans under REPAYE if you consolidate them first:

• Subsidized Federal Stafford Loans (from the FFEL Program).
• Unsubsidized Federal Stafford Loans (from the FFEL Program).
• FFEL PLUS Loans made to graduate or professional students.
• FFEL Consolidation Loans that do not include parent PLUS loans.
• Federal Perkins Loans.

REPAYE vs. PAYE

The Pay As You Earn (PAYE) plan was an earlier version of the REPAYE plan. The plans are similar, but there are some noticeable differences.

Different repayment terms

A key distinction between PAYE and REPAYE is the repayment term. With REPAYE, there is a 25-year repayment term for graduate school loans and a 20-year term for undergraduate loans. On the PAYE plan, all loans have a 20-year term.

On both plans, your payments will total 10 percent of your discretionary income, but with PAYE, you’ll lose eligibility if that payment exceeds what you would pay on a standard 10-year repayment plan.

Marital status and income

Another notable difference is that for married borrowers, both spouses’ incomes will be included when calculating the monthly payment under REPAYE. With PAYE, only the borrower’s income will be calculated as long as they’re married and filing separately.

In general, PAYE may be the better choice for married borrowers, since it could result in a lower monthly payment. It could also be a good choice for borrowers who attended graduate school since the repayment period will be five years shorter than with REPAYE.

REPAYE does have its benefits: if your income rises, you won’t be at risk of losing eligibility with REPAYE as you will with PAYE. Your monthly payments could be higher than what you’d pay on a standard repayment plan, but you will have the flexibility of a longer repayment term and more security if your income drops again.

Deciding between the two

To help you decide which income-driven repayment plan to pursue, use the official loan simulator from the federal government, which can help you compare monthly payments under both plans. It may also be wise to speak to your loan servicer and a financial advisor.

How to apply for REPAYE

To find out if you qualify for an income-driven repayment plan like REPAYE, you can apply on the Federal Student Aid (FSA) website. You can also contact your loan servicer directly and ask about your options. If you already participate in a different income-driven repayment plan and want to switch to REPAYE, you’ll need to visit the same FSA website to apply.

The application process takes around 10 minutes to complete. Have the following information handy to make the process as smooth as possible:

• Your FSA ID (the username and password that serves as your legal signature and lets you access the FSA online portal).
• Personal information (address, phone number, email address, etc.).
• Financial information (household income details).

There is no fee to complete an application for any income-driven repayment plan, including REPAYE.

Alternatives to REPAYE

There are many ways for borrowers to change their student loan payments outside of REPAYE. These options include:

• Pay As You Earn (PAYE) Plan: This program typically has borrowers pay 10 percent of their discretionary income for 20 years before having the remaining balance forgiven.
• Income-Based Repayment (IBR) Plan: If you’re a new borrower on or after July 1, 2014, you will pay 10 percent of your discretionary income for 20 years before having the remaining balance forgiven. If you took out loans before July 1, 2014, you will pay 15 percent of your discretionary income for 25 years before having the remaining balance forgiven.
• Income-Contingent Repayment (ICR) Plan: Income-Contingent Repayment asks you to pay 20 percent of your discretionary income or what you would owe on a repayment plan with a fixed payment and a 12-year term. ICR has a 25-year term before the remaining balance is forgiven.
• Direct Loan Consolidation: If you consolidate your federal student loans, you may be able to extend your repayment term by up to 30 years. It may also open up other repayment plans for older types of federal loans, like FFEL or Perkins loans.
• Graduated Repayment Plan: The Graduated Repayment Plan starts out your monthly payments low and then increases them every two years. There is no loan forgiveness component at the end of the repayment period, which lasts for 10 years for most loans and between 10 and 30 years for consolidation loans.
• Extended Repayment Plan: The Extended Repayment Plan has a term of up to 25 years, though there is no forgiveness at the end of the term. Payments may be either fixed or graduated. This plan is available only to borrowers who have at least $30,000 in outstanding Direct Loans or FFEL loans.
• Student loan refinancing: Refinancing your student loans with a private lender may save you money and lower your monthly payments if you can qualify for a lower interest rate. However, this is typically only a good choice for private loans, since refinancing your federal student loans will cause you to lose federal benefits.

The bottom line

REPAYE is a payment plan that can help some student borrowers to maintain a manageable monthly student loan payment, with the added bonus of forgiveness at the end of the 20-year payment term. Whether REPAYE is the best choice for you will depend on a number of factors, including your income, marital status, and more– so you may wish to consult a financial advisor before applying for eligibility.