Revised Pay As You Earn: How REPAYE Works

Revised Pay As You Earn is an income-driven repayment plan for federal student loans. The REPAYE Plan lets borrowers pay 10% of their discretionary income for 20 to 25 years. After they make their final payment, the U.S. Department of Education will forgive their remaining loan balance.

If you’re considering the REPAYE Plan but have questions about how it works and about whether income-based repayment is right for you, keep reading to learn more.

REPAYE SUMMARY

• Repayment length: 20 to 25 years

• Payment amount: 10% of your discretionary income

• Eligible loans: Must have Federal Direct Loans

• Ineligible loans: Parent Plus Loans, Direct Consolidation Loans that paid off Parent Plus Loans, FFEL Program Loans, and Perkins Loans

• Best for: Borrowers who are single or have higher incomes

The Revised Pay As You Earn Plan is one of the income-driven repayment plans that the U.S. Department of Education offers to Direct Loan borrowers. Since being introduced in 2015, the REPAYE Plan has allowed student loan borrowers to make monthly payments based on their income and spouse’s income (if married), family size, and loan balance for 20 to 25 years.

After the final required student loan payment is made, the remaining balance will be forgiven.

You qualify for the REPAYE Plan if you have:

• Direct Subsidized Loans

• Direct Unsubsidized Loans

• Direct Plus Loans made to graduate or professional students

• Direct Consolidation Loans (but not if your consolidation loan paid off a Parent Plus Loan)

No Parent Plus Loans. Parent Plus Loans are ineligible for the REPAYE Plan.

No Partial Financial Hardship. Unlike the IBR and PAYE Plans, you don’t need a partial financial hardship to qualify for REPAYE.

Non-Direct Loans. Other federal loans, such as Federal Perkins Loans and Federal Family Education Loan Program (FFEL) Loans, can qualify for REPAYE if you consolidate them into a Direct Consolidation Loan.

You can consolidate federal student loans for free at the Federal Student Aid website, studentaid.gov.

Private Loans Ineligible. Private student loans are not eligible for the REPAYE Plan or any income-based repayment plan offered by the federal government.

Monthly payments under the REPAYE plan are calculated using your:

• Family size: is different than the dependents you claim on your federal tax return. Your family size includes children you support more than 50% of the time, whether they live with you or elsewhere. It also includes adults that live with you more than half the year that you provide more than 50% of their support. Support includes food, shelter, medical care, etc.

• Location: affects your payment if you live in Alaska or Hawaii. Your payment will be lower than the payments for borrowers who live in the 48 contiguous states and D.C.

• Income: you can use the adjusted gross income (AGI) from your most recent tax return filed in the past two years. If you haven’t filed taxes in two years, or you’ve had a significant change in income (decrease) since you filed taxes, you can use a recent pay stub.

• Tax filing status: only affects married borrowers. If you’re married, the REPAYE plan will count you and your spouse’s income no matter if you file a separate or joint tax return. You may be able to avoid using your spouse’s income if you don’t have reasonable access to their financial information.

• Loan balance: only affects married borrowers whose spouse has federal student loan debt, and they can reasonably access their spouse’s income information. Your loan servicer will calculate your portion of the payment by first adding your spouse’s debt with your debt, dividing that total by your percentage of the debt, and multiplying that percentage by your total monthly payment. This process does not make you liable for your spouse’s student loan debt.

Your loan servicer will use your family size and income to determine your discretionary income. Your monthly payment under the REPAYE Plan will be 10% of your discretionary income.

Looking for a REPAYE Calculator? Use the Department of Educations’ Loan Simulator.

Unlike other IDR plans, the REPAYE Plan has no payment cap. Therefore, as your income increases, your monthly payment will continue to increase year to year. Eventually, your monthly payment under the REPAYE Plan could be more than you would pay under the 10-Year Standard Repayment Plan.

You apply for the REPAYE Plan by completing the Income-Driven Repayment Plan Request. You can apply online at studentaid.gov or submit a paper form to each loan servicer your loans have been placed with.

You’ll need the following information to complete the application:

• Personal information: mailing address, phone number, email address, etc.

• Family size: minors you support and adults who live with you that you support

• Financial information: tax return or, if your current income is low, alternative documentation of income (pay stub, a letter about your gross income, etc.)

The REPAYE Plan is a qualifying repayment plan for the Public Service Loan Forgiveness Program. All income-driven repayment plans qualify for PSLF.

You can switch from another IDR Plan to the REPAYE Plan and still receive credit towards PSLF. For example, if you’re in the IBR Plan, you can switch from IBR to REPAYE and continue earning credit towards the 120 required monthly payments.

Borrowers qualify for IDR loan forgiveness after they complete the repayment period. Under the REPAYE Plan, the repayment period is:

• 20 years for borrowers who have only undergraduate loans

• 25 years for borrowers who have graduate loans

Ordinarily, the IRS would treat the amount forgiven as taxable income. However, President Joe Biden announced legislation that eliminates the tax liability on all student loan debt forgiven within the next 5 years.

The REPAYE program has a unique interest subsidy feature. If your monthly payment amount isn’t enough to cover the monthly interest that accrues on your loans, then the Department of Education will pay the unpaid accrued interest on subsidized loans for three years.

After three years, the subsidy will cover half of any the accruing interest not covered by your monthly payment.

The REPAYE program will cover 50% of the unpaid interest that accrues each month on your unsubsidized loans.

Every 12 months, you have to recertify your income and family size to remain in the REPAYE Plan. You have two options to complete your annual recertification:

1. submit your request online via the Federal Student Aid website, studentaid.gov

2. mail/fax a paper Income-Driven Repayment Plan Request to your loan servicer(s)

Download: Income-Driven Repayment Plan Request (PDF) 2021

To ensure your paperwork is processed before the annual deadline, send your request around month 10 of your repayment period.

In addition to REPAYE, borrowers should explore other options to lower their monthly student loan payments. These include:

• Pay As You Earn (PAYE) Plan: allows new borrowers to pay 10% of their discretionary income for 20 years before forgiving their remaining Direct Loan balances. For married borrowers, the PAYE Plan is a better option if they file taxes separately.

• Income-Based Repayment (IBR) Plan: gives new borrowers a payment based on 10% of their discretionary income and other borrowers a payment of 15% of their income. You’re a new borrower if you first borrowed a federal student loan on or after July 1, 2014.

• Income-Contingent Repayment (ICR) Plan: works best for Parent Plus Loan. It’s the only plan that allows Parent Plus Loan borrowers to make monthly loan payments based on their income. You pay this amount for 25 years, at which point your remaining balances are forgiven.

• Refinancing: can save you money by lowering your interest rate. Many private lenders will want you to have a good credit score (680+) and a steady income for the best interest rates. However, refinancing your federal loans with a private lender causes you to lose federal benefits like student loan repayment options based on your income, loan forgiveness, etc.

If trying to decide the best repayment option for your financial and personal goals sounds exhausting, I get it. I’ve helped many borrowers just like you, develop effective repayment strategies. You can get my help by simply scheduling a 10-minute talk with me.

I can get a general idea of what’s going on with your federal and private student loans and assess your best options. From there, we can create a game plan that best fits your needs and sets you up for student loan success.