Revised Pay As You Earn (REPAYE) - Student Loan Repayment - FCAA (2024)

Revised Pay As You Earn is a federal student loan program that was launched on December 17, 2015. REPAYE is designed to help borrowers maintain affordable monthly student loan payments relative to their income. In many ways, REPAYE mirrors the Pay As You Earn (PAYE) program. Under both programs, payments are generally set to 10 percent of the borrower’s discretionary income. And if a borrower’s income or family size changes, the REPAYE payment amount will reflect that change.

However, there are important distinctions between the two programs.

First, unlike with PAYE, borrowers do not need to have a partial financial hardship to qualify for REPAYE. Also, there is no payment cap under REPAYE, which means that payments under this program may exceed the payments required under the Standard (10-Year) Repayment Plan.

While PAYE is limited to those who started borrowing after October 2007, REPAYE does not have a restriction based on loan date. Borrowers with older loans can qualify for REPAYE.

Loans Eligible for Revised Pay As You Earn

• Direct Subsidized Stafford Loans
• Direct Unsubsidized Stafford Loans
• Direct PLUS Loans for Graduate or Professional Students
• Direct Consolidation Loans (if the loan did not repay any Parent PLUS loans)

Loans Ineligible for Revised Pay As You Earn

• FFEL Loans
• Parent PLUS loans
• Consolidation Loans that repaid Parent PLUS loans
• Private loans

How Revised Pay As You Earn Payments are Calculated

Payments on Revised Pay As You Earn may increase or decrease annually due to changes to a borrower’s income. To maintain REPAYE payments, a borrower must recertify his or her income each year.

REPAYE payments are based on the borrower’s discretionary income. Discretionary income is determined by the borrower’s Adjusted Gross Income (AGI) and the poverty guideline for his or her state.

ADJUSTED GROSS INCOME (AGI) – POVERTY GUIDELINE = DISCRETIONARY INCOME

The monthly payment amount under Revised Pay As You Earn will generally be set to 10 percent of the borrower’s discretionary income. This is often more affordable than other repayment plans, such as Standard, Graduated, or Extended Repayment, which do not consider the borrower’s income. It is possible, however, for REPAYE payments to exceed payments on the Standard Repayment Plan.

Additional Benefits of Revised Pay As You Earn

Interest Benefits

While enrolled on Revised Pay As You Earn, borrowers will obtain an interest payment benefit. For the first three years after enrolling on REPAYE, if a borrower’s payment does not cover the monthly interest that accrues on the loan, the government will waive the unpaid interest on any subsidized loans.

For example, if a borrower’s monthly REPAYE payment is $50 and the subsidized loan accrues $100 in interest each month, the government will waive the $50 that accrues above the borrower’s monthly payment. This can help prevent the borrower’s balance from increasing for the first three years on REPAYE.

After the first three years, the government will waive half of the interest that accrues above the subsidized loan payment. For unsubsidized loans, the government will waive half of the interest that accrues during all periods.

As long as the borrower remains on the REPAYE plan, any unpaid interest will not be capitalized. Interest will capitalize if the borrower chooses to leave the REPAYE plan or if they are removed from REPAYE by not recertifying their income on time each year.

Forgiveness

The Revised Pay As You Earn Plan allows for loan forgiveness of any remaining balance after 20 years for borrowers with undergraduate loans. For borrowers who enroll both undergraduate and graduate school loans under REPAYE, the repayment period prior to forgiveness is 25 years.

Drawbacks of Revised Pay As You Earn

By making reduced monthly payments on REPAYE, it is possible that the borrower will pay more in interest over the life of the loan compared to what they would pay on the Standard (10-Year) Repayment Plan.

To maintain REPAYE payments, the borrower must submit annual proof of income. If a borrower does not submit this documentation on time, the loan payment may increase to the Standard (10-Year) payment amount, and any unpaid interest will be capitalized. It is important for borrowers to remember to recertify their income on time each year.

Borrowers who receive loan forgiveness under REPAYE may be required to pay income taxes on the forgiven balance. See the IRS website for more information.