Revised Pay As You Earn (REPAYE): How It Works

Revised Pay As You Earn (REPAYE) helps eligible federal student loan borrowers manage their student loan debt by providing monthly payments that are proportionate to your income. Some borrowers on REPAYE may even see monthly payments as low as $0. Here’s how it works.

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What is Revised Pay As You Earn (REPAYE)?

The Revised Pay As You Earn repayment plan is an income-driven repayment (IDR) plan that assists eligible federal Direct loan borrowers in paying back their debt.

On REPAYE, your monthly student loan payment is 10% of your discretionary income. For federal student loan purposes, this amounts to the difference in your yearly income and 150% of the poverty guideline for your family size and state.

This sounds complicated, but the government will calculate this for you when you apply for REPAYE. You can also use the government’s loan simulator tool to get an idea.

The REPAYE repayment term is 20 years for undergraduate loans and 25 years for graduate and professional loans. Any remaining balance after your repayment term is eligible for student loan forgiveness.

Important new changes in the works

The Department of Education has unveiled proposed changes to REPAYE that could help ease the debt burden for many federal student loan borrowers. This overhaul includes:

• $0 monthly payments if you make less than $30,500 a year (or $62,400 for a family of four)
• Loan forgiveness after 10 years for those who borrowed $12,000 or less, with an additional year for each $1,000 after that
• A phase out of new enrollment in the Pay As You Earn (PAYE) and Income-Contingent (ICR) repayment plans to encourage eligible borrowers to enroll in REPAYE
• Lowering the discretionary income threshold for undergraduate borrowers from 10% to 5%
• An end to accumulated interest for borrowers with a minimum monthly payment lower than their interest due

Note that it’s currently uncertain if or when this new proposal will take effect.

How does interest work on REPAYE?

Although IDRs can provide much-needed relief for federal student loan borrowers, they do have one drawback, and that’s accumulated interest.

On an IDR, your minimum monthly payment is determined by your income. Some lower-income borrowers have monthly payments that are lower than their student loan interest, causing their loan balance to grow over time even if they’re paying in full and on time.

One of the most significant benefits of REPAYE is its interest subsidy, in which the government will pay for some (or all) of your remaining interest if your minimum monthly payment doesn’t cover it.

If you’re on REPAYE for a Direct Subsidized loan and your monthly payment isn’t enough to pay your interest, the government will pay all of your interest for the first three years of repayment. Then, it will pay for half of your interest for the remaining years.

If you’re on REPAYE for a Direct Unsubsidized loan and find yourself in the above situation, the government will pay for half of your interest for the life of your loan.

Who is REPAYE best for?

Although REPAYE has helped millions of student loan borrowers afford their monthly payments, this IDR may not be for everyone.

Middle-income borrowers

Since there’s no cap to your monthly payment amount (it will always be 10% of your discretionary income), high earners — or those who anticipate a higher income in the future — might not benefit from REPAYE. In fact, these borrowers could find that REPAYE payments are higher than on the 10-year Standard Repayment plan.

Likewise, REPAYE might not be the best choice for low-income borrowers. Rather, the Pay As You Earn (PAYE) repayment plan may be the better option. On PAYE, your monthly payments are capped, so they’ll never exceed what you’d pay on the Standard Repayment plan.

Single borrowers

On every IDR except for REPAYE, only the borrower’s income counts for payment determination if you file your taxes as “married, filing separately.” With few exceptions, both incomes are counted on REPAYE, no matter how you file your taxes. This could mean married borrowers could have a higher monthly payment on REPAYE compared to other IDRs.

Borrowers who can’t afford the Standard Repayment plan

Borrowers on REPAYE have 20 or 25 years to pay back their loan, depending on whether they took out undergraduate, graduate or professional student loans.

This extended term results in lower monthly payments, but borrowers will pay more in interest over the life of their loan. Borrowers who can afford to may want to opt for a repayment plan with a 10-year term, such as the Standard or Graduated repayment plans.

What loans aren’t eligible for REPAYE?

Federal student loans made to parents on behalf of their children are not eligible for REPAYE. These include:

• Direct Parent PLUS
• Direct Consolidation for Parent PLUS
• FFEL Parent PLUS
• FFEL Consolidation for Parent PLUS

The following loans are eligible for REPAYE as long as they’re consolidated into a Direct Consolidation loan first:

• Stafford loans (Subsidized and Unsubsidized)
• FFEL PLUS loans made to graduate and professional students
• FFEL Consolidation loans (as long as those consolidated loans weren’t used to pay Parent PLUS loans)
• Perkins loans

In addition, private student loans and defaulted federal loans aren’t eligible for any federal repayment plan, including REPAYE.

REPAYE vs. other income-driven repayment (IDR) plans

Pay As You Earn (PAYE): Like REPAYE, PAYE has an interest subsidy, but it doesn’t apply to Unsubsidized borrowers. The subsidy also only lasts for three years. However, on PAYE, your monthly payments will never exceed what you’d have on the Standard Repayment plan.

Income-Based Repayment (IBR): The interest subsidy on the IBR and PAYE is the same. However, your repayment term could be 20 or 25 years, and your discretionary income could be 10 or 15% — it depends on when you took out your loan.

Income-Contingent Repayment (ICR): There are no interest subsidies on the ICR plan, but undergraduates can take advantage of a 25-year repayment term compared to REPAYE’s 20. In addition, the ICR requires a payment of up to 20% of the borrower’s discretionary income. Perhaps most importantly, ICR is the only income-driven repayment plan available to Parent PLUS borrowers, but only after consolidation.

How to apply for REPAYE

1. Make sure you’re eligible

REPAYE is only available for Direct loans and certain others after Direct Consolidation. Check your promissory note to see what type of student loan you have. If you have any questions, call your servicer.

2. Apply online

Once you’ve determined your eligibility, you can apply for an income-driven repayment plan online through studentaid.gov. You will need to log in (or create an account) first.

To make things easy, you can view a demo of the application process right on the student aid website. This way, you’ll know exactly what to expect — and what documents to have handy — while you’re applying.

In general, you’ll need to provide some basic information on your application, including your family size and marital status. You’re also required to provide tax information, but the student aid website has an IRS Data Retrieval Tool to help with this.

After providing your tax and income information, the website will choose the IDR that provides you with the lowest monthly payment. But if it makes more sense for your financial situation, you can manually select REPAYE.

To finish up, you’ll enter in personal information, like your name, address and phone number. Finally, you will complete your application with an electronic signature.

3. Recertify

To remain on your repayment plan, you’ll need to recertify and renew your IDR each year. You can do this following the same steps as above, but click “recertify” instead of “apply.”