What is the Revised Pay As You Earn Program
Revised Pay As You Earn is an income-driven repayment plan that limits federal student loan payments at 10% of your discretionary income. After 20 or 25 years of repayment, your balance will be forgiven.
Revised Pay As You Earn is a consolidation of the Income-Based Repayment (IBR) Program. The IBR program was created in 2007 and has helped thousands of Americans pay back their loans every year since its creation. However, it does have one major drawback: your monthly payment is not fixed for the life of the loan. As your income rises, so does your required monthly payment.
The Revised Pay As You Earn program fixes this problem by basing your monthly payment on what is known as the “Payment Percentage.” The Payment Percentage bases your required monthly payment on a percentage of your income. This way, no matter how much your salary rises over time, you still pay roughly the same amount every month for 20-25 years.
Revised Pay As You Earn: How it works
The Revised Pay As You Earn plan is an income-driven repayment program. Because of this, it works best for those who have a high debt to income ratio. In addition, it’s also suitable for those who possibly will stay on their jobs for 20 to 25 years.
If you fall into either one (or both) of these categories, then the chances are good that you should look into signing up for the Revised Pay As You Earn Program. It will help ensure your wallet isn’t destroyed by student loan payments every month.
A few other essential things to keep in mind: Forgiveness does not happen automatically. You have to sign up for the program and make payments on time every month to ensure you qualify.
If your loans are subsidized, unsubsidized, or before July of 2015 (when they passed new legislation), they will not be eligible for Revised Pay As You Earn unless you consolidate them first into a Federal Direct Consolidation Loan. This is because those student loans do not fit under the definition of “Direct Loans,” which Revised Pay As You Earn falls under.
Forgiveness with Revised Pay As You Earn
The Revised Pay As You Earn program also works with the Public Service Loan Forgiveness Program. The loan forgiveness is given to borrowers employed in a public service position for at least ten years after graduating from college.
There are some requirements you need to meet before being eligible for such forgiveness terms and a reduced monthly bill:
- You must have taken out a loan after September 30, 2007.
- Your debt cannot exceed $60,000 (or $30,000 for those who entered repayment from October 2014 to July 2015).
- When submitting this application, you must be earning less than your state’s median income if employed in a public service position.
- You must also be working at least 30 hours per week, or on average, the income from your employer can’t exceed 150% of that state’s median wage (again, for those who entered repayment after October 2014).
- Your monthly payment cannot exceed what it would have been under the Standard Repayment Plan.
If you believe this may apply to you or someone else, feel free to speak with a financial aid officer at your college about signing up for Revised Pay As You Earn today!
The monthly payment under REPAYE:
Your monthly payment under the Revised Pay As You Earn (REPAYE) Plan will be equal to the lesser of your Federal student loan debt or 10% of what you earn above 150% Poverty Guideline for your state and family size.
A borrower’s circumstances may vary. As an example, if you have $20,000 in student debt and are currently making monthly payments of $200 while working a part-time job at an annual salary of only $16,000; under the REPAYE program, your required fee would be calculated as the lesser amount between either paying 10% ($2000) or paying just on your outstanding federal student loans ($400).
For other borrowers who do not meet specific requirements such as family size or income level for Pay As You Earn (PAYE) plan eligibility, your option is to apply for Revised Pay As You Earn.
Discretionary income :
The discretionary income rate for the REPAYE plan is zero percent (0%). However, your monthly payment may still be higher than what you currently pay on IBR or PAYE plans. For example, suppose your discretionary income rate comes to zero, but you find that REPAYE program payments don’t fit into your budget anymore.
In that case, it might be a good idea to look into other options such as Income-Based Repayment (IBR), which has lower minimum payment requirements of just fifteen percent (15%) of the difference between your Adjusted Gross Income and 150% Poverty Guideline.
Direct Consolidation Loans:
Even if you’ve consolidated your federal student loans in the past, it is still possible to apply for a REPAYE plan and make qualifying payments on time. If this interests you, contact your loan servicer immediately as there are no application or origination fees associated with applying for Revised Pay As You Earn!
Is REPAYE the right plan for you?
REPAYE, one of several income-driven repayment plans available to borrowers, offers the lowest monthly payment among these options. You may choose REPAYE in the following instance(s):
- If you don’t qualify for other income-driven repayment plans, then the Revised Pay As You Earn program is your best option.
- You don’t have grad school debt.
- You know that your future income is likely to be increased
- You’re single.
What are the eligibility requirements of REPAYE?
- REPAYE is available to Direct Loan borrowers only.
- You must consolidate all previous Government Student Loans into one Federal Direct loan to apply for REPAYE.
- If you have FFEL or Perkins loans, those will not be included with the consolidation process and cannot be used toward your eligibility requirements under this plan.
- You must have no loans in default.
- Your monthly payment under REPAYE should be less than the Standard Plan (or IBR).
- REPAYE can help you take advantage of Public Service Loan Forgiveness Program (PSLF) if your employment qualifies for it.
What is the difference between REPAYE from other income-driven plans?
REPAYE has a PAYE-like option for married couples.
The difference between REPAYE and IBR is that in REPAYE, your income could be used to recalculate the monthly amount owed even when you have filed jointly with your spouse.
In other words, if the spouse’s income is less money than the other, then their more minor contribution will be taken into consideration before computing the new payment under this plan.
This is NOT available in any other plans such as IBR or PAYE, where spouses must file separately and cannot combine incomes regardless of whether they both choose “married filing joint” status on their tax return.
Why do I need to repay my loan if it’s forgiven under REPAYE anyway?
You have to repay your loan because it is not a scholarship or gift. It’s money you borrowed and promised to return with interest, so if the government forgives some of this debt, then they are still entitled to the principal plus interest amount, which should be paid back in full.
REPAYE does offer student loan forgiveness after 20 years instead of 25 like IBR does for public servants, but that doesn’t mean that other federal student loans will necessarily be forgiven too. In addition, you must keep up with payments on all non-forgiven portions until these amounts are completely satisfied (or written off by your lender).
What other options are available to borrowers who don’t qualify for REPAYE or IBR?
Standard Repayment Plan, Graduated Repayment Plan, and Extended repayment plans are the other available options for borrowers who want to take advantage of REPAYE’s lower monthly payment but don’t qualify.
These three plans will charge a higher interest rate than REPAYE or IBR since you’ll be paying off your debt over a more extended period. But, keep in mind that they can also help you save on overall loan costs if this option works better with your financial situation.
What are the benefits of REPAYE over other income-driven repayment plans?
The most significant benefit is that you’re not required to pay any amount above your monthly payment under this plan. The only exception here is if you choose Graduated Repayment Plan, in which case you will have to start with a minimum amount and gradually increase it as time goes on.
If anything changes with your financial situation, later on, there’s nothing stopping borrowers from changing their payments accordingly or even switching back into Standard Repayment Plan (or another IBR) where they started!
Why do people avoid the Revised Pay As You Earn program?
People may be wary about choosing REPAYE because they believe that these lower monthly payments will affect their credit score.
However, this is only true if you miss your scheduled payment by more than 30 days or fail to make the minimum required amount for two months in a row, which means that borrowers should not have any problems with staying on track as long as they keep making timely and complete repayments.
What are some disadvantages of Revised Pay As You Earn?
One disadvantage is that REPAYE isn’t offered to Parent PLUS loan holders who would otherwise qualify under other income-driven repayment plans such as PAYE or IBR. This option may be available through FFEL loans, but most lenders don’t offer it since they were discontinued years ago (and replaced with Direct Loans).
Another disadvantage is that REPAYE requires married borrowers to file their taxes separately if one spouse earns more than the other, leading to higher tax bills.
What are the limitations of REPAYE?
You can no longer choose IBR if you’re married since this repayment plan is now your only option for income-driven repayments. It’s also important to note that even though there’s an initial cap on how much the monthly payment will be, it could increase after a certain amount of time which may not match what you expected when first signing up.
Finally, keep in mind that any past due amounts or accrued interest may be capitalized after you switch to this plan, and that’s a lot of money that can add up very quickly.
What are the benefits?
This program is your only option if either one (or both) spouses have federal student loans from before, but now they become joint borrowers on those debts with different repayment plans for each person.
This means that no matter how high their income may go, there will always be at least one affordable repayment plan available to them. In addition, it could help reduce monthly costs and lower overall interest paid over time than other options such as Standard Repayment Plan.
REPAYE program makes it easier than ever for married couples who file taxes jointly and keep in mind that all payments made under this plan will be fully tax-deductible.
What are the pros and cons of using a private lender for my education debt vs. using federal loans through the Department of Education?
The most significant difference is that federal loans have fixed interest rates. Your monthly payments are determined based on your income, family size, and the amount of money you borrowed.
Private lenders may offer a lower interest rate. Still, their repayment plans can be less flexible than what’s available through federal programs, so it’s essential to understand all the options available before making any decisions about where to borrow from.
On top of this, private lending doesn’t provide deferment opportunities when life gets in the way, and you need to stop making payments for a bit of a while, like what’s available through federal programs.
Federal loans are also eligible for loan forgiveness after 20 or 25 years (depending on your situation). Still, this benefit is only offered with income-driven repayment plans, which can be tricky to qualify for due to high debt levels, large family size, or other factors that don’t allow borrowers without IBR eligibility access at all.
Keep in mind that private lenders do not offer any loan forgiveness either, so make sure to factor this into your overall borrowing decisions when selecting between public vs. personal education debts.
Finally, keep in mind that even though Federal student loans come with certain protections, they may still require credit checks which can lower your overall credit score, so be sure to consider this when making repayment decisions.
Hopefully, this article has provided you with all the information necessary to make more informed decisions about how much you should borrow, where to get your student loans from, and what repayment plan might be best for your financial situation.
Borrowers must take their time weighing out these options to fully understand everything there is to know before making any final borrowing or repayment decisions. It will likely impact them for years after graduation depending on how many total dollars are borrowed, interest rates paid overtime, and whether or not a borrower qualifies for federal income-driven repayment plans. Those with certain protections like Public Service Loan Forgiveness could help reduce overall costs even further if qualified. Check out Student Loan programs available at EdFed to have more information on how you can avail of REPAYE.