Understanding REPAYE, The New Student Loan Repayment Plan

Prodded by President Obama, the Department of Education created the REPAYE plan in 2015 to ease the burden of student debt. REPAYE stands for Revised Pay As You Earn.  This repayment plan is an updated version of the former Pay As You Earn plan and it sweetens the repayment pot in more ways than one.

 

An Income-Driven Repayment Plan

REPAYE is an income-driven student loan repayment plan in which a debtor's payment amount depends on the income she earns. It first became available on December 17, 2015, and you must apply for it annually. REPAYE allows more Direct Loan borrowers — some 5 million more people — to cap their monthly payments at 10 percent of their discretionary income, regardless of how long ago they borrowed the money. It essentially extends the Pay As You Earn Plan benefits to all who took out Direct Loans.

 

Lifetime Payment Cap

Another benefit of the REPAYE plan is that the government forgives any remaining debt after you’ve been paying it down for 20 years. The 20-year cap applies only to those who borrow for undergraduate study, however. Those who borrow for graduate study must pay for 25 years. The prior Pay As You Earn included the same benefits, but they only applied to recent borrowers. The REPAYE plan opens the benefits to all Direct Loan borrowers.

 

No Income Requirement

You don't have to plead and prove poverty to enter the REPAYE plan. In fact, there is no income requirement at all. With other income-driven plans, borrowers had to show that their incomes were low when compared to their student loan debts. For example, Income-Based Repayment (IBR) and Pay As You Earn (PAYE) required that a borrower must show that the 10-year Standard Repayment Plan was too burdensome and that her payment under PAYE and IBR — 10 percent or 15 percent of discretionary income, respectively — would be less than it would be under the 10-year standard. No such proof is necessary with REPAYE, and your income level will not prevent you from qualifying for the plan.

 

Government Pays Some Accrued Interest

A huge benefit of REPAYE is that in some cases, the government picks up unpaid interest on both subsidized and unsubsidized Direct Loans. PAYE allowed for the government to cover unpaid interest on subsidized loans for three years if your monthly payment did not cover all of the accruing interest on the loan. REPAYE matches this, but expands this subsidy to unsubsidized federal loans. Under REPAYE, the government covers half of any unpaid interest accruing on unsubsidized federal loans, as well as unpaid interest on subsidized loans beyond the designated three years. This makes REPAYE especially attractive if you are a low-income earner, because the 10 percent monthly payment cap generally won't cover your entire interest payment.

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