Student Loan Repayment: Revised Pay As You Earn (REPAYE)

On December 17, 2015, the US Department of Education released a new student loan repayment program known as Revised Pay As You Earn, or REPAYE, for short.

It is known that the government allows college graduates to enlist in “income-driven” repayment plans for their Federal student loans. However, the plans are all so confusing and perplexing. Also, the verbiage contained in the regulations is difficult to understand, and the documentation that is needed to apply for these programs seems daunting.

Historically, there have been three student loan income-driven plans…

  • Income-Based Repayment
    • 15% of discretionary income for 25 years
    • 10% of discretionary income for 20 years (new borrowers as of July 1, 2014)
    • Direct Loans and FFEL
  • Income Contingent Repayment
    • 20% of discretionary income, or 12 year repayment (whichever is less), for 25 years
    • Direct Loans only
    • No partial financial hardship requirement
  • Pay As You Earn
    • 10% of discretionary income for 20 years
    • Only for borrowers between October 1, 2007 and October 1, 2011
    • Direct Loans only

There is also the “Income Sensitive Repayment” program, however this is not truly considered an income-driven plan, but rather a special program for people with very low incomes.

Now, there is a new income-driven plan (REPAYE). Here is what you need to know about REPAYE.

No income limitations. All of the other income-driven repayment plans require that applicants demonstrate some form of a “financial hardship” should they have to repay their student loans on the standard 10 year repayment plan.

Revised Pay As You Earn does not have any income requirements and allows anyone to apply and participate.

Eligibility does not depend on when you took out your loans. Unlike the other income-driven programs which only apply if your loans were disbursed between certain dates, REPAYE is available for anyone regardless of loan disbursement dates.

Only for Direct Loans. It is important to know however that REPAYE only applies to Direct Loans, which means that loans issued prior to July 1, 2010 do not apply (since the Direct Loan program did not start until that date). If you have FFEL, Stafford, or Perkins loans, you will need to consolidate through the Direct Loan program before you qualify for REPAYE.

The program last for 25 years if you go to graduate school. Under the other three income-driven programs, there is no differentiation between undergraduate and graduate level education. Regardless of your length of schooling, the repayment programs lasted the same length. Under REPAYE, your repayment will be effective for 20 years if you only went through undergraduate studies. If any of your loans were for graduate school however, then your repayment will last 25 years.

Improvements to interest subsidies. Under the Income-Based and Pay As You Earn programs, the federal government subsidizes accrued interest of subsidized loans for up to three years. Under REPAYE, not only does the federal government provide the same subsidy for the first three years, but they also subsidize half of the accrued interest after. AND this subsidy is extended to everyone (not just subsidized loan borrowers).

You must recertify annually. This is nothing new. As was the case with the other income-driven repayment programs, you must recertify annually. This is done to ensure that your payments keep up with your income, your family size, and the changes in poverty guidelines. These circumstances can change over time.

Conclusion

Overall, the REPAYE program does improve on some of the short-comings of its predecessors. However, the program is still not a long-term solution.

It is difficult to make a program that will work as a long-term solution. The student loan business is very profitable for the government, and they do not want to dip into the profit margins (even though they should not be profiting from student loans, but that is a different discussion). The point is that a repayment program that actually benefits borrowers over a longer term is still not available – and may not be for quite some time. The government has been talking about creating a whole new program that replaces all other income-driven plans, but we will have to wait and see what comes up.

For now, use income-driven repayment only if absolutely necessary. And even when you do enroll, please realize that it is a short-term solution. The long-term solution will always be to pay off your student loans aggressively and assert your freedom!

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