The Revised Pay As You Earn (REPAYE) Plan: Marriage, Interest, & Forgiveness

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Wondering if the Revised Pay As You Earn plan is the best repayment plan for you? Read this straight-forward guide to the REPAYE plan to find out.

The biggest questions you're probably looking to answer are:

  • How much will your payment amount be? The lowest of all the IDR plans unless you're married.
  • Do you qualify for the REPAYE plan? Yes, if you have Direct Loans. But not if your Direct Loan includes a consolidated Parent Plus loan
  • How do I apply for the REPAYE plan? Complete the IDR application.
  • How quickly will your loans be forgiven under the REPAYE plan? 20 to 25 years.
  • Does REPAYE offer an interest subsidy? Yes.
  • Does REPAYE qualify for the PSLF program? Again, yes.

In this post, I'll answer all of those questions so you can make an informed choice when it's time for you to review your repayment options.

But first, let's make sure we understand what the Revised Pay As You Earn repayment program is and how it came to be.

What is the Revised Pay As You Earn Repayment (REPAYE) Plan

The Revised Pay As You Earn plan is a repayment program that offers you affordable loan payments.

Your loan payments under this plan will always be tied to your family size and adjusted gross income. As your family size increases or decreases, your payment increases or decreases. The same is true with your AGI.

There's one catch with the REPAYE plan that's different than other income-driven repayment plans:

Your monthly payment can be greater than it would be under the 10-year Standard repayment plan.

So if you're a higher earner (think doctor, some lawyers, etc.) you could pay more under the REPAYE plan than you would under the Standard repayment plan.

When did REPAYE start

Let's back up for a brief history lesson.

The U.S. Department of Education has offered a repayment program based off income since 1994.

The first program available to student loan borrowers was the income-contingent repayment plan. With that repayment option, borrowers' monthly payment amount for their loan debt would be tied to their family size and adjusted gross income.

Next, was the income-based repayment plan in 2007. This plan improved upon the ICR plan by offering lower monthly payments.

Three years, the Pay As You Earn plan was introduced. The PAYE plan improved upon IBR by offering an even lower payment and offering loan forgiveness faster. The PAYE plan was restricted to new borrowers.

A new borrower is someone who first borrowed a federal student loan after 2007 but got another disbursement after 2011.

In 2014, the IBR program for new student loan borrowers arrived. That plan offered eligibility to borrowers who incurred their first federal student loan debt after July 1, 2014.

Finally, in the winter of 2015, the REPAYE plan.

Collectively, these plans are referred to as the income-driven repayment plans.

Who Qualifies

There's only one rule you need to meet to qualify for the Revised Pay As You Earn repayment program:

You must have Direct Loans.

This includes Stafford and Graduate Plus loans.

It does not include:

  • Federal Family Education Loans
  • Perkins Loans
  • Joint Consolidation Loans
  • Parent Plus Loans or
  • Direct Consolidation Loans that included Parent Plus loans.
If you consolidate your FFEL and Perkins loans, they will become Direct Loans. And once they're Direct Loans, they will qualify for the REPAYE plan and PSLF forgiveness. This result one reason why you should consolidate.

Of course, private loans aren't eligible for the REPAYE plan or any other IDR plan.

Only federal loans are eligible for the IDR plans.

Related: How to Get Information About Your Student Loans

How to Apply for REPAYE

You can apply for the REPAYE plan by using the Income-Driven Repayment plan request form.

On the first page, you'll be asked what repayment plan you want to make your student loan payments under.

You'll want to choose the REPAYE plan.

REPAYE Calculator

The REPAYE plan calculates your monthly payment at 10% of your discretionary income.

Your discretionary income is based on your family size and adjusted gross income.

If you're single, the REPAYE plan is an awesome student loan repayment plan.

Year after year, you'll end up with the lowest available monthly payment.

But if you're married?

The REPAYE plan may not be the best option.

Under this plan, your spouse's income is included in your income no matter if you filed your tax return separately or jointly.

Use the Department of Education's REPAYE calculator to determine your monthly payment.

How to Recertify

As with the other IDR plans, your monthly payments under the REPAYE plan will last 12 months.

Around your 10th payment, your loan servicer will let you know it's time for you to recertify your student loan payment.

Recertification is straight-forward.

There's no separate income-driven recertification form.

Instead, you'll use the same form you used to apply for the repayment program: the Income-Driven Repayment Plan request form.

On the first page, instead of choosing to enroll in the REPAYE plan, you'll choose the box to recertify your income and family size for the upcoming year.

REPAYE Loan Forgiveness

By itself, REPAYE offers two types of loan forgiveness for Direct Loans:

  1. Forgiveness of undergraduate debt
  2. Forgiveness of graduate debt

If all your of Direct Loans are from undergrad, REPAYE will forgive your Direct loan balance after 20 years.

But if you have any federal loans from graduate school, REPAYE will forgive your remaining balance after 25 years.

Additionally, the REPAYE plan also qualifies you for forgiveness under the PSLF program (more on that below).

What is the difference between PAYE and REPAYE

The major difference between PAYE and REPAYE comes down to the interest subsidy I described above. Other than that, the PAYE plan may actually be the better plan — especially for married borrowers.

Click here to learn more about the battle between PAYE vs REPAYE.

The REPAYE Interest Subsidy

For the first 3 consecutive years you’re in the REPAYE plan, the U.S. Department of Education offers an interest subsidy on your subsidized Stafford Loans and Subsidized Direct Consolidation Loans.

This interest subsidy will pay the accrued interest that’s not covered by your monthly REPAYE plan payment.

For example, assume the monthly interest that accrues on your subsidized loan is $50, but your monthly REPAYE payment only covers $10 of this amount. The Department will pay the remaining $40.

After 3 years of payment, the Department offers two more REPAYE interest subsidies. The Department will pay:

  1. 50% of any unpaid accrued interest on subsidized loans or the subsidized part of a consolidated loan; and
  2. 50% of any unpaid accrued interest on unsubsidized loans, Grad Plus loans, and unsubsidized consolidation loans.34 CFR § 685.209(c)(2)(iii).

REPAYE Interest Capitalization

There is a huge danger when you leave the REPAYE program either by failing to timely recertify or switching to another plan:

Interest Capitalization.

Any time you leave the REPAYE plan, the unpaid interest that has accrued will be added to your principal balance.

Interest also capitalizes anytime you place your loans that are in REPAYE on forbearance.

There is no limit on the amount of interest that can be capitalized.

Switching from IBR to REPAYE

The main reason to switch from IBR to REPAYE is to get a lower monthly payment.

The IBR plan calculates your monthly payment at 15% of your discretionary income. The REPAYE plan calculates it at 10%.

Related: What Are The Disadvantages of the Income-Based Repayment Plan

While it doesn’t sound like much, that 5% of savings can be huge on a monthly basis.

Two things to note if you are switching from IBR to REPAYE.

First, you’ll need to make a one-month reduced-payment forbearance payment before you can switch. The amount of that payment can be as low as $5 or as high as your current monthly IBR payment.

You make that request on page 4 of the Income-Driven Repayment request form.

Second, when you leave IBR, the interest will capitalize. So don’t be shocked when you look at your bill and see your principal balance has grown.

You have to have a partial financial hardship to qualify for the IBR plan. But you do not need such hardship for the REPAYE plan.

Does REPAYE Qualify for Public Service Loan Forgiveness

The payments you made under the REPAYE plan may qualify for student loan forgiveness under the PSLF program.

I say may because you still need to meet the program's other requirements.

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