What Is Revised Pay-As-You-Earn Repayment?

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Revised Pay-As-You-Earn Repayment, or REPAYE, is a repayment plan that bases the loan payments on a percentage of the borrower’s discretionary income, as opposed to the amount owed. REPAYE first became available in 2015.

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REPAYE is one of four income-driven repayment plans. The others are Income-Contingent Repayment (ICR), Income-Based Repayment (IBR) and Pay-As-You-Earn Repayment (REPAYE). REPAYE generally is a good option for borrowers who don’t qualify for PAYE and who are not concerned about the marriage penalty and the lack of a payment cap in REPAYE.

Eligible Loans

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REPAYE is available for loans in the William D. Ford Federal Direct Loan Program (Direct Loans).

REPAYE is not available for loans in the Federal Family Education Loan (FFEL) and Federal Perkins Loan programs, although FFEL loans and Federal Perkins loans can be made eligible by including them in a Federal Direct Consolidation Loan.

Federal Parent PLUS Loans are not eligible for REPAYE, directly or indirectly. Federal Parent PLUS loans may be eligible for ICR, if included in a Federal Direct Consolidation Loan.

Loan Payments

Monthly student loan payments in REPAYE are based on 10% of discretionary income, Discretionary income is defined as the amount by which adjusted gross income (AGI) exceeds 150% of the poverty line. This percentage of discretionary income is the lowest percentage of discretionary income among the income-driven repayment plans.

The monthly student loan payment under REPAYE is not capped, so the payments will increase as income increases

REPAYE also has a marriage penalty. The student loan payment under REPAYE is based on joint income for married borrowers regardless of their tax filing status.

The minimum payment under REPAYE is $10 if the calculated payment is $5 or higher, otherwise it is zero.

Treatment of Interest

Student loans can be negatively amortized under REPAYE. This means that the loan payment is less than the new interest that accrues. Accrued but unpaid interest is not capitalized under REPAYE.

The federal government pays the accrued but unpaid interest on subsidized loans and half of the accrued but unpaid interest on unsubsidized loans for the first three years under REPAYE. During the remainder of the repayment term, the federal government pays half of the accrued but unpaid interest on subsidized and unsubsidized loans under REPAYE.

Repayment Term and Loan Forgiveness

The maximum repayment term under REPAYE is 20 years (240 payments) if the borrower has only undergraduate loans. If the borrower has any loans from graduate or professional school, the maximum repayment term under REPAYE is 25 years (300 payments). Any remaining debt is forgiven after the 240 or 300 payments are made under REPAYE, including a calculated zero monthly payment.

If the borrower qualifies for Public Service Loan Forgiveness, the remaining debt is forgiven after 10 years’ worth of payments (120 payments).

Repayment Examples

Assuming an AGI of $30,000, the initial monthly student loan payment in REPAYE will be about $89 for a family of one and zero for a family of four.

This increases to about $256 and $85 for an AGI of $50,000 and to about $422 and $252 for an AGI of $70,000.

These payment examples assume a 2022 poverty line of $12,880 for a family of one and $26,500 for a family of four.

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Credit: www.forbes.com /

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