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The Revised Pay As You Earn (REPAYE) plan is one of four income-driven repayment plans for federal student loans. On this plan, your monthly student loan payment will be set at 10% of your discretionary income, and your repayment term will be 20 or 25 years. REPAYE also offers an interest subsidy. However, the plan may not be the best choice for married borrowers or those with grad school loans. Read on for more information about the REPAYE plan, including the way it works and how it compares to other income-driven repayment plan options.
What is the Revised Pay As You Earn Plan?
The Revised Pay As You Earn plan is an income-driven repayment plan for federal student loan borrowers who want to adjust their monthly payments in accordance with their income. On this plan, your monthly payments will be set to 10% of your discretionary income. Discretionary income is the difference between your annual income and 150% of your state’s poverty guidelines for your family size. Your loan terms will also be extended to 20 years for undergraduate loans and 25 years for graduate school loans. If you still have a balance at the end of that time (and you’ve been keeping up with payments consistently), it will be forgiven. Typically, you have to pay taxes on the forgiven amount of this income-driven repayment plan, but these taxes have been waived through 2025.
How Revised Pay As You Earn Plans Work
Almost any federal student loan is eligible for the REPAYE plan with the exception of parent loans or consolidation loans that contain parent loans. (Federal loans made to parents are only eligible for one income-driven plan, Income-Contingent Repayment (ICR), and they must be consolidated first.) Your monthly payment on the REPAYE program will be based on your income and family size. If you’re married, both your income and your spouse’s income will be taken into account, even if you file your taxes separately. This works differently than Pay As You Earn (PAYE), Income-Based Repayment (IBR), and ICR, which base your payment on your income alone if you file separately from your spouse. The REPAYE plan also has an interest subsidy. If your monthly payment doesn’t cover all your student loan interest charges, the U.S. Department of Education will cover some or all of the difference. More specifically, it will cover 100% of the difference on subsidized loans for up to three years and 50% after three years. It will also cover 50% of the difference on unsubsidized loans. You’ll need to recertify your income and family size every year to stay on the REPAYE plan. If you fail to recertify, you could be removed from the plan and your interest charges will capitalize, which means they will be added on to your balance. There’s no income requirement for REPAYE, but if your income increases significantly, your payments could end up costing more than they would on the standard 10-year plan. Any payments you make on REPAYE (or any of the income-driven plans) qualify for the Public Service Loan Forgiveness (PSLF) program, which forgives the remaining balance on your Direct Loans after you’ve made 120 qualifying payments, assuming you meet the program’s other requirements. Recommended: Guide to Student Loan Forgiveness
When Do REPAYE Plans Work Best?
The REPAYE program could be a good fit for you if:
You’re not married. Since REPAYE takes both spouses’ incomes into account when calculating your monthly payment — regardless of whether you file taxes separately — it may not be the best choice if you’re married and looking to lower your student loan bill as much as possible.
You don’t have graduate school loans. REPAYE requires a longer repayment term for graduate school loans (25 years) than undergraduate loans (20 years). In comparison, the PAYE and IBR plans may offer a 20-year term for graduate school loans.
Your income disqualifies you from other plans (or may in the future). There’s no income requirement for REPAYE. However, your monthly payments will rise along with your income.
You don’t have parent loans. Only federal loans made to students are eligible for REPAYE. Parent loans and consolidation loans that contain parent loans don’t qualify.
If you want to put your loans on the REPAYE plan, you can apply for it on the Federal Student Aid website. Alternatively, you can request that your loans be placed on whichever income-driven plan would result in the lowest monthly payment.
Other Income-Driven Plans
If REPAYE isn’t right for you, you may want to consider another federal program instead. These are the three other income-driven repayment plan options for paying back student loans.
Pay As You Earn (PAYE)
Similar to REPAYE, the PAYE plan sets your monthly payment at 10% of your discretionary income. However, it sets your loan terms at 20 years whether you have undergraduate or graduate school loans. Plus, it will take just your income into account if you file taxes separately from your spouse. Unlike REPAYE, there’s an income requirement for the PAYE plan. Your payments on the PAYE plan must be less than what they would be on the standard 10-year plan based on your income and family size. If your income increases to a point where your monthly payment would be more than it would be on the standard 10-year plan, you’ll remain on PAYE, but your payment would be the amount you would pay on the 10-year standard plan.
Income-Based Repayment (IBR)
On the IBR plan, your monthly payment and repayment term will vary depending on when you took out your loans. If you borrowed on or after July 1, 2014, you’ll pay 10% of your discretionary income for 20 years. If you borrowed before that date, you’ll pay 15% for 25 years. Like PAYE, IBR has an income requirement and the same terms as mentioned above, and will consider your income separately from your spouse’s income if you file separately.
Income-Contingent Repayment (ICR)
The Income-Contingent Repayment (ICR) plan has the highest monthly payment of any of the income-driven repayment plans: 20% of your discretionary income or the amount you’d pay on a fixed, 12-year term, whichever is lower. It also has a long repayment term of 25 years. The ICR plan may be a good choice for parent borrowers because it’s the only income-driven plan for which parent loans are eligible. Recommended: Your Guide to Choosing a Student Loan Repayment Plan
Can You Refinance Your Student Loans to a Revised Pay As You Earn (REPAYE) Plan?
The REPAYE plan is a federal repayment plan available only for federal student loans. When you refinance student loans, you exchange one or more of your existing loans for a new loan. However, by refinancing your federal loans with a private lender, they will no longer be eligible for REPAYE. How refinancing works is that it gives you the chance to choose new repayment terms, typically between five and 20 years. If you opt for a longer term, you may lower your monthly student loan payments. Just be aware that in this case you’ll likely pay more interest over the long term. You can find and compare student loan refinance rates to get a sense of your options.While refinancing can have a number of benefits, including potentially lowering your interest rate, which could save you money, it may not be the best choice for federal loans. Not only does refinancing make federal loans ineligible for plans like REPAYE, but it also means forfeiting access to other federal programs and protections, such as deferment and loan forgiveness programs.
The Takeaway
The REPAYE plan can help give you relief on your monthly federal student loan payments, and it may be especially beneficial if you’re single and have undergraduate loan debt to pay off. The plan may not be as appealing if you’re married, since it uses your income and your spouse’s to calculate your monthly payment. It might be worth exploring the option of refinancing your student loans as long as you don’t need access to federal programs or protections and if you could save money by qualifying for a lower interest rate. You may be able to get better loan terms as well.Lantern by SoFi can help by showing you offers from multiple lenders at once so you can easily compare loan rates and terms to help decide whether refinancing makes sense for you. Explore options for student loan refinancing with Lantern.
Frequently Asked Questions
Is REPAYE a good idea?
What does REPAYE mean for student loans?
Does REPAYE qualify for student loan forgiveness?
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About the Author
Rebecca Safier
Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
