If you want to reduce the monthly bill for your federal student loans, you have a lot of options.
There are currently four income-driven repayment plans that let you recalibrate the amount you pay per month based on how much you earn. The idea is that you pay what you can afford, as a manageable percentage of your income.
REPAYE is one of these plans. Like the other three variations, there are distinct pros and cons to signing up for REPAYE—and it’s better for some situations than others. Here’s an overview.
See also: Comparing Income-Driven Repayment Plans.
What is REPAYE?
REPAYE is an income-driven repayment plan for federal loans. The acronym stands for “Revised Pay-As-You-Earn.”
REPAYE resembles the similarly-named Pay-As-You-Earn (PAYE) program, which is also income-driven. The difference is that PAYE is only available to more-recent borrowers and requires that you show financial hardship, whereas anyone with a Direct Loan can sign up for REPAYE, regardless of when the loan was originated.
How is payment calculated?
Under REPAYE, your monthly payment is determined based on what the federal government believes is your discretionary income.
That’s calculated based on the difference between what you earn and 150% of the federal poverty level, a number that varies depending on your family size and where you live.
Under REPAYE, your monthly payment will be no more than 10% of your discretionary income.
Can my loan be forgiven with REPAYE?
Yes. Like the PAYE program, you can get your loan forgiven under REPAYE after 20 to 25 years of qualifying payments.
This number varies depending on whether you’re repaying only undergraduate loans — in which case, you’ll qualify for the shorter forgiveness term — or if you have graduate loans in the mix, in which case your loans are forgiven after 25 years.
Do I qualify for REPAYE?
REPAYE is one of the easier income-driven repayment plans to qualify for.
Any federal loan with the label “Direct” qualifies for REPAYE. This is also true for other types of federal loans you consolidated to a Direct Loan. Unlike with PAYE, it doesn’t matter when you took out the loans.
Parent PLUS loans don’t qualify, however; neither do private or defaulted loans.
See also: How to Get Student Loans Out of Default — What You Need to Know About Loan Rehabilitation.
One noteworthy difference between REPAYE and other income-driven repayment plans is that you don’t have to have a certain debt-to-income ratio and you don’t need to demonstrate that you can’t afford the standard 10-year term that most federal loans are repaid under.
When is REPAYE a good idea?
There are a few significant differences between REPAYE and other plans. Here are a few situations where REPAYE might make sense.
When you have older loans
To qualify for PAYE, you need to have taken out your first student loan after October 1, 2007, and you need to have taken out a Direct or Direct Consolidation Loan after October 1, 2011. There is no such time limit to qualify for REPAYE.
When you make too much to qualify for PAYE or IBR
Under both PAYE and Income-Based Repayment (IBR), you have to show a certain debt-to-income ratio in order to qualify.
This isn’t true for REPAYE. Under this plan, your payments will never rise above 10% of your income, regardless of how much you earn.
The downside of that is that there’s no cap on the amount your payments can rise to — so if your income goes up substantially, so will your monthly payment.
With PAYE and IBR, that’s not true — your payment will never rise higher than it would have been under the standard 10-year term.
If you don’t have graduate loans
The other income-driven repayment plans treat undergraduate and graduate loans the same — and you can get your loans forgiven after 20 years, depending on the terms of the plan.
This isn’t true for REPAYE. Under this plan, undergraduate loans get forgiven after 20 years. If you have even a single graduate or professional loan in the mix, however, your forgiveness term jumps to 25 years.
If you have both graduate and undergraduate loans, you may be better off under PAYE, which has a 20-year forgiveness period regardless of the type of loan.
If you originated your loans on or after July 1, 2014, you can also qualify for a 20-year forgiveness period under IBR.
If your monthly payment isn’t enough to cover your interest
Although PAYE and IBR usually have more generous terms, REPAYE’s interest benefit is better than both of these plans.
If the payment you’re assigned isn’t enough to cover the interest portion of your monthly payment, the program will kick in more than these other plans to cover the remaining interest.
This can be instrumental to preventing one of the major drawbacks of income-driven repayment plans — which is that you can pay significantly more in interest by stretching your payment terms over the long term.
How do I apply for REPAYE?
If you’re not sure whether REPAYE is the best deal for you, check out the Federal Student Aid Repayment Estimator.
Find out whether student loan consolidation for federal loans is a good idea for you. Check out this Student Loan Consolidation Calculator.