Revised Pay as You Earn (REPAYE) Program Review

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Revised Pay as You Earn (REPAYE) Program Review

The History of Revised Pay as You Earn

Since the REPAYE plan is a revised version of another plan, something had to come before.

Up until 2015, some federal student loan borrowers were able to use the Pay as You Earn (PAYE) program. Like the revised plan, this enabled them to lower their monthly payments.

Unfortunately, the benefits of this program were limited to anyone who took out their first loan after October 1, 2007. And even still, there were strict hardship requirements that needed to be met to be approved.

As a result of the burgeoning student debt crisis, then-President Barack Obama urged the Department of Education to create a new plan that would extend benefits to include more borrowers.

From there, the Revised Pay as You Earn program was born.

To recap:

  1. The original plan was the Pay as You Earn (PAYE) program.
  2. In 2015 it was revised and became the REPAYE plan.
  3. In terms of PAYE VS REPAYE, the new program makes the benefits available to more borrowers.

What is the Revised Pay as You Earn (REPAYE) Program?

Simply put, the Revised Pay as You Earn program caps monthly student loan payments at 10% of their discretionary income. Assuming all payments have been made on time over 20 or 25 years, there is the chance of forgiveness for the rest of the loan repayment.

There’s been a lot in the news lately about student loans and the burden they leave. Many are struggling to repay, and some have even left the country just to escape paying.

The latter isn’t a smart choice. Nor is it legal.

The repercussions of defaulting on your student loan can include:
> Wages can be garnished
> Tax refunds can be withheld
> You can be sued by government and private lenders
> You may not get approved for insurance and much more
> Your credit score will be impacted

Despite all that, CNBC Finance states that one million students default on their loans every single year and that by the year 2023 it is expected that approximately 40 percent of borrowers will default on their student loans.

REPAYE offers a smarter option for any who have federal student loans. REPAYE is an income-driven program and the 10% cap is based on your discretionary income, which is calculated using a variety of factors, including the poverty guidelines of your state. This is an excellent option for many who may be at the point of running away like the young man mentioned above did.

You may not be able to pay off your student loan fast, but every bit helps, right?

There are several different options available for student loan repayment help, so let’s take some time to determine if the Revised Pay as You Earn program is the right one for you.

To recap:

  1. REPAYE is an income-driven repayment plan.
  2. Loan repayments are capped at 10% of the borrower’s discretionary income.
  3. Discretionary income is calculated using a variety of factors, including the poverty guidelines of your state.
  4. Defaulting on a student loan comes with serious consequences.
  5. Nearly one million people default on their student loans every year.

Monthly Payments: what to Expect with REPAYE

If you are planning to enroll in the REPAYE program, here’s what to expect in terms of repayment.

As indicated above, payments are capped at 10% of your discretionary income. The program calculates this based on the difference between your annual adjusted gross income (AGI) and 150% of the poverty guidelines for your state and family size.

However, since there’s a good chance annual incomes and family sizes change, it is necessary to re-certify your enrollment every year with up-to-date information.

So it is likely that as your own circumstances change, so will the amount of your monthly payments.

To recap:

  1. Discretionary income is calculated based on the difference between your annual income and 150% of the poverty guidelines in your state and the size of your family.
  2. You will need to recertify your REPAYE qualifications every year, providing up to date info.
  3. Your monthly payments will fluctuate depending on your income and family size.

Primary Benefit of the REPAYE Program

Assuming you meet REPAYE eligibility requirements, one of the chief benefits of the plan is the chance of having your student loan forgiven or discharged.

Any student enrolled in the plan and repaying loans for their undergraduate degree can work toward getting their student loan forgiven. To do so, they must make qualified, on-time payments for 20 years.

Any borrowers who are making payments for loans used for either graduate or professional studies will be eligible after making qualified, on-time payments for 25 years.

However, there is a bit of a double-edged sword here. Loan amounts that are forgiven are considered taxable income, so be prepared to have to pay taxes on whatever your remaining amount is after the 20 or 25 year payment periods.

To recap:

  1. One of the primary benefits of the REPAYE program is student loan forgiveness.
  2. Loans for undergraduate studies must be paid per agreement for 20 years to be eligible for forgiveness.
  3. Loans for graduate and professional studies must be paid per agreement for 25 years to be eligible for forgiveness.
  4. The amount forgiven is considered taxable income.

Who is Eligible for the Revised Pay as You Earn (REPAYE) Program?

Wondering if you can REPAYE student loans using this program?

For the most part, everyone who has a federal student loan is eligible.

All of the following direct loans meet eligibility requirements:

  • Direct Stafford Loans (subsidized & unsubsidized)
  • Direct Consolidation Loans (that don’t include Parent Plus Loans)
  • Grad PLUS Loans

The following are only eligible if they are consolidated into a Direct Consolidation Loan:

  • FFEL Subsidized Federal Stafford Loans
  • FFEL Unsubsidized Federal Stafford Loans
  • FFEL (Federal Family Education Loan program) PLUS Loans for graduate or professional students
  • FFEL Consolidation Loans that did not include PLUS Loans
  • Federal Perkins Loans

Also, note that any loans that have defaulted are not eligible for the program.

Is REPAYE Right for Everyone?

Choosing the right income-driven repayment plan can make your life easier by helping to manage your bills.

For those who are considering your options, REPAYE may be your answer if you:

  • Qualify for Public Service Loan Forgiveness (PSLF). Anyone who works for the government or nonprofit agency may be eligible, but one of the qualifications is you need to enter into an income-driven repayment plan such as REPAYE.
  • You’re struggling to pay your bills but don’t qualify for PAYE.

The higher your income, the higher the amount you have to pay each month. Remember, it’s 10%. So if you are expecting a significantly higher income in the future, keep in mind what that means to your monthly payments.

And if you’re single, monthly income only applies to your income. If you are planning to get married in the future, the program counts your spouse’s income too when calculating your payment amount. Two incomes mean a higher monthly payment.