The Department of Education has officially released REPAYE as the newest addition to the Income-Driven Repayment (IDR) Plan family. Read below for more information on the differences between REPAYE and other IDR Plans. You can apply online (StudentLoans.gov) or by paper application from your loan servicer.
Here is a summary of some of the differences between REPAYE and IDR:
No Income Requirement
Unlike PAYE and IBR plans, the amount of your debt and your income level won’t keep you from qualifying.
Undergraduate Loans vs. Graduate Loans
Income-driven repayment plans forgive any remaining loan balance after a specific number of years of qualifying repayment—either 20 or 25 years, depending on the plan. With REPAYE, if you’re only repaying loans you received as an undergraduate student, you’ll repay your loans for up to 20 years. However, if you’re repaying even one loan that you received as a graduate or professional student, you’ll repay your loans (including any loans you received as an undergraduate) for up to 25 years.
Married Borrowers
The other income-driven repayment plans use the combined income of you and your spouse to set your payment amount only if you file a joint federal income tax return. If you and your spouse file separate tax returns, your payment amount is based on only your income. REPAYE (with limited exceptions) uses the combined income of you and your spouse to set your monthly payment amount, regardless of whether you file a joint tax return or separate returns. This could increase your monthly payment amount.
REPAYE Payments Not Capped
Under PAYE and IBR, your payment will never be higher than what it would have been under the 10-year Standard Repayment Plan, no matter how much your income increases. With REPAYE, there’s no cap on your monthly payment amount. Your payment will always be 10% of your discretionary income, no matter how high your income grows. This means that if your income increases significantly, your REPAYE payment could be higher than what you would have to pay under the 10-year Standard Repayment Plan.
REPAYE & Interest Benefit
REPAYE provides a more generous interest benefit. If your payment doesn’t cover all of your interest, REPAYE pays more of the remaining interest than PAYE or IBR. This can help prevent your loan balance from ballooning and limit the total cost of your loans.
Under the REPAYE, PAYE, and IBR plans, your calculated monthly payment amount may not cover all of the interest that accrues on your loans each month (this is called “negative amortization”). In this situation, the government will pay all or a portion of the remaining unpaid accrued interest that is due each month. The specific interest benefit varies depending on the plan.
Under the REPAYE Plan, if your calculated monthly payment doesn’t cover all of the interest that accrues, the government will pay
- all of the remaining interest that is due on your subsidized loans (including the subsidized portion of a consolidation loan) for up to three consecutive years from the date you begin repaying your loans under the REPAYE Plan, and half of the remaining interest on your subsidized loans following this three-year period; and
- half of the remaining interest that is due on your unsubsidized loans (including the unsubsidized portion of a consolidation loan), during all periods.
For example, if the monthly interest that accrues on your subsidized loans is $40, but your monthly REPAYE Plan payment covers only $25 of this amount, the government will pay the remaining $15 for the first three consecutive years from the date you began repaying your loans under the REPAYE Plan, and will pay $7.50 of the remaining $15 in interest after this three-year period. If the monthly interest that accrues on your unsubsidized loans is $30, but your monthly REPAYE Plan payment covers only $20 of this amount, the government will pay $5 of the remaining $10 in interest during all periods.
Under the PAYE Plan and the IBR Plan, if your calculated monthly payment doesn’t cover all of the interest that accrues on your subsidized loans (including the subsidized portion of a consolidation loan), the government will pay all of the remaining interest that is due for up to three consecutive years from the date you begin repaying your loans under the PAYE or IBR plan.
For example, if the monthly interest that accrues on your subsidized loans is $40, but your monthly PAYE or IBR plan payment covers only $25 of this amount, the government will pay the remaining $15 for the first three consecutive years from the date you began repaying your loans under the PAYE or IBR 9lan.
Under the PAYE or IBR plan, you are responsible for paying all of the interest that accrues on your unsubsidized loans, as well as all of the interest that accrues on your subsidized loans after the end of the three-year interest subsidy period. Interest that’s not covered by your monthly payment will continue to accumulate and will be capitalized (added to your loan principal balance) if you no longer qualify to make payments based on income, or if you leave the PAYE or IBR plan.
Under all three plans, the consecutive three-year period during which the government pays all of the remaining interest that accrues on your subsidized loans does not include periods of economic hardship deferment. However, periods of any other type of deferment or forbearance are counted.
For example, if you receive the interest subsidy benefit on your subsidized loans for your first year of repayment under the REPAYE, PAYE, or IBR plan, and then receive an economic hardship deferment for the next two years, the government would still pay all of the remaining interest that accrues on your subsidized loans for another two consecutive years after the economic hardship deferment ends. However, if instead of receiving an economic hardship deferment, you return to school and receive an in-school deferment for two years following your first year of repayment, you would have no remaining eligibility for the interest subsidy benefit at the end of the deferment period under the PAYE or IBR plan. Under the REPAYE Plan, you would still qualify for a partial interest subsidy benefit, as explained above.
Recertification of Income/Family Size
If you don’t recertify your income by the deadline, the consequences vary depending on the plan.
- Under the REPAYE Plan, if you don’t recertify your income by the annual deadline, you’ll be removed from the REPAYE Plan and placed on an alternative repayment plan. Under this alternative repayment plan, your required monthly payment is not based on your income. Instead, your payment will be the amount necessary to repay your loan in full by the earlier of 10 years from the date you begin repaying under the alternative repayment plan, or the ending date of your 20- or 25-year REPAYE Plan repayment period. You may choose to leave the alternative repayment plan and repay under any other repayment plan for which you are eligible.
- Under the PAYE Plan, the IBR Plan, or the ICR Plan, if you don’t recertify your income by the annual deadline, you’ll remain on the same income-driven repayment plan, but your monthly payment will no longer be based on your income. Instead, your required monthly payment amount will be the amount you would pay under a Standard Repayment Plan with a 10-year repayment period, based on the loan amount you owed when you initially entered the income-driven repayment plan. You can return to making payments based on income if you provide your servicer with updated income information, and if your updated income still qualifies you to make payments based on income.
In addition to the consequences described above, if you don’t recertify your income by the annual deadline under the REPAYE, PAYE, and IBR plans, any unpaid interest will be capitalized (added to the principal balance of your loans). This will increase the total cost of your loans over time, because you will then pay interest on the increased loan principal balance.
Under all of the income-driven repayment plans, if you don’t recertify your family size each year, you’ll remain on the same repayment plan, but your servicer will assume that you have a family size of one. If your actual family size is larger, but your servicer assumes a family size of one because you didn’t recertify your family size, this could result in an increased monthly payment amount or (for the PAYE and IBR plans) loss of eligibility to make payments based on income.
Department of Education’s blog: (http://blog.ed.gov/2015/12/your-federal-student-loans-just-got-easier-to-repaye/):
Income-Driven Fact Sheet (includes update on REPAYE):
https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment.pdf
Income-Driven Q&A’s (includes update on REPAYE):
https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment-q-and-a.pdf
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