What is REPAYE?
Revised Pay as You Earn Repayment Plan (“REPAYE”) is an income driven repayment (“IDR”) plan (along with) where payments are calculated based on your income and family size. The monthly payment amount in an IDR plan can vary year over year since the payment is based on a percentage of discretionary income. For REPAYE, this amount is 10%. Each IDR plan may have different repayment schedules. REPAYE’s repayment period is 20 years if all of the loans are for undergrad or 25 years if for graduate or professional study. Under REPAYE (and any other IDR plan), any remaining unpaid loan amount after the repayment period is forgiven. Any forgiven amount is taxed to you in the year forgiven at ordinary income tax rates – this differs from Public Service Loan Forgiveness where the forgiven amount is tax free.
The benefit with REPAYE is if you have subsidized loans and your monthly payment amount under REPAYE is not enough to pay the amount of interest that accrues on a monthly basis, the government will subsidize 100% of that accruing interest for the first 3 years and then 50% after. If you have unsubsidized loans, the interest will be subsidized at 50% for any period of time that your REPAYE monthly payment due is not sufficient to pay the monthly interest.
Who is Eligible for REPAYE?
REPAYE eligibility differs from PAYE – no requirement is needed that the payment must be lower than what you would pay under the 10 year Standard Repayment Plan. When it comes to eligibility, any borrower qualifies as long as they have an eligible federal student loan(s). Eligible loans include:
Direct loans (subsidized, unsubsidized, PLUS loans, consolidation loans)
Direct PLUS loans and Direct Consolidation loans made to parents do not qualify
Stafford loans are eligible if consolidated (subsidized, unsubsidized, PLUS loans)
FFEL PLUS loans and FFEL Consolidation loans that repaid PLUS loans made to parents do not qualify
Perkins loans are eligible if consolidated
Essentially, any loan noted above that states “eligible if consolidated” means the loan was consolidated into a Direct Consolidation Loan. Unfortunately, private loans do not qualify for REPAYE or any income driven repayment plan.
How is the monthly payment calculated under REPAYE?
With REPAYE, payments are calculated based on student loan debt, family size and total household income. Your monthly payment amount is calculated at 10% of your household discretionary income which is defined as the difference between Adjusted Gross Income (“AGI”) and 150% of the poverty line amount for your family size and state. You can calculate what your payment will be using the Repayment Estimator on the Studentloans.gov website. If you are married, your spouse’s income will be included in AGI regardless of your tax filing status. For example, even if you file separately for tax purposes, you cannot exclude the spouse’s income from the payment calculation. Based on the calculation, it is possible to qualify for $0 monthly payments but it is also possible that the monthly payment may exceed the 10 year Standard Repayment Plan amount since there is no cap on the payment amount. This differs from other IDR plans.
How to apply for REPAYE?
To apply for REPAYE, you start with submitting and Income Driven Repayment Plan request application which is available on studentloans.gov. The application allows you to select an income driven repayment plan or request that the loan servicer determine eligibility and place you on the one with the lowest monthly payment amount. If you have more than 1 loan servicer, you must submit a separate request to each servicer. The application will request either AGI or other documentation of income in order to calculate your monthly payment amount. Generally, AGI is used if you filed a federal tax return in the past 2 years and your current income is not significantly different from the income you reported on your recently filed tax return. You can provide AGI by utilizing the online tool in the application which will directly retrieve the information from the IRS. If you paper file your application then you can provide a paper copy of your most recently filed tax return.
If your current income is materially different from the income on the tax return – i.e., loss of job – you may be able to provide a pay stub or indicate on the application that you have no income. If you report that you have no income, no additional documentation is necessary.
Once you apply, it may take a few weeks for the loan servicer to process the request. If you are currently repaying your loans under a different repayment plan, your loan servicer may apply forbearance to your account while processing the request for an IDR plan.
Will the monthly payment amount remain the same under REPAYE?
Under any IDR plan, the monthly payment amount may increase or decrease each year if there is a change to your income or family size. Each year, you “recertify” your income and family size by providing the loan servicer with updated information i.e., recent pay stubs and/or tax return. Even if there has been no change in your income or family size, you are still required to recertify each year.
Recertifying for REPAYE by the annual deadline
Your loan servicer will send you a reminder notice when it is time to recertify. In order to recertify, you submit another IDR plan application and under the reason why you are submitting the application, select that it is for income documentation for the annual recertification of your payment amount. Although recertification is required every year, if there has been a material change in your income or family size before the annual date, you can submit updated information and request that the servicer recalculate your payment amount at any time. In order to do this, submit a new application and for the reason, select that you are submitting documentation early because you want immediate recalculation of your payment. Note that you are not required to report changes in your financial situation before the annual date. You can choose to wait until your annual recertification date. If you choose to wait, your monthly payment amount will remain the same until the update income information is provided.
It is important to recertify your income and family size by the deadline. If you do not, you will be removed from the REPAYE plan and placed on an alternative repayment plan. Under the alternative plan, your required monthly payment is not based on income. Instead, the payment will be the amount necessary to repay your loan in full by the earlier of:
(a) 10 years from the date you begin repaying under the alternative repayment plan or
(b) the ending date of your 20 or 25 year REPAYE plan repayment period.
You can choose to leave the alternative repayment plan and repay under another plan that you are eligible for. The other consequence of failing to recertify on time is that any unpaid interest will be capitalized meaning it is added to the principal balance of your loans. This will increase the total cost of your loans over time because interest will be assessed on the larger loan principal balance.
Is REPAYE right for me?
Income-driven repayment plans may lower a borrower’s federal student loan payments. However, whenever a borrower makes lower payments or extends a loan repayment period, you are likely to pay more in interest over time. There are other paths such as the 10-year Public Service Loan Forgiveness or paying the loan off faster than the prescribed amount of time. If you’ve decided on an income driven repayment plan, deciding which plan will provide the most benefit is based on your individual circumstances. Understand the nuances between each plan, calculate your monthly payment and then decide which one is right for you.