If you’re struggling to repay your federal student loans, you don’t have to resign yourself to pinching pennies to make your payments. Borrowers who qualify for the Revised Pay As You Earn (REPAYE) program can get their monthly payments capped based on their income.
REPAYE is one of several U.S. Department of Education’s income-driven repayment plans (IDR) that can help make loan repayment more manageable than the 10-year Standard Repayment Plan for federal student loans. What sets REPAYE apart is its generous interest benefit and more relaxed requirements for qualification.
Here’s what you should know:
- Who is eligible for the REPAYE program?
- When is remaining student loan debt forgiven?
- What about interest on your student loans?
- How does REPAYE work with Public Service Loan Forgiveness (PSLF)?
- REPAYE and additional student loan forgiveness programs
- Is REPAYE right for you?
What is Revised Pay As You Earn (REPAYE)?
REPAYE is a relatively new program. It was introduced in 2015 as a revision to the Education Department’s Pay As You Earn (PAYE) plan, an income-driven repayment plan that generally limits your payments to 10% of your discretionary income. REPAYE opened up eligibility to millions more borrowers because unlike PAYE, it’s open to borrowers who took out federal student loans before Oct. 1, 2011.
REPAYE came at a time when student loan debt was continuing to rise. Right now, there are more than 45 million Americans with more than $1.56 trillion in student loan debt, and those numbers increase each year.
REPAYE doesn’t just reduce monthly loan payments. The program also promises to forgive student debt if certain requirements are met. Here’s a closer look at how it works.
All Direct Loan borrowers are eligible for a REPAYE plan, regardless of when the money was borrowed. Other types of student loans that are consolidated into Direct Loans — like Stafford and FFEL Plus — also qualify.
However, Parent PLUS loans or consolidated loans that include Parent PLUS loans, are not eligible. As with other income-driven repayment plans, private loans and defaulted loans are also ineligible with the REPAYE program.
Still, some student loan borrowers might find REPAYE better suited to their needs than others. To see if REPAYE is the best repayment choice for you, consider the following:
How much are monthly payments?
With the REPAYE program, payments are capped at 10% of your discretionary income. Your discretionary income is calculated using your adjusted gross income minus 150% of the state poverty guidelines for your family size and state.
Although it’s possible to qualify for a monthly payment of $0, there is also no cap on payments — a major difference from the original PAYE and IBR programs. So if your income increases significantly, your payments could too.
Another potential drawback: If you’re married, your spouse’s income and existing federal student loan debt are factored in when determining the monthly payment. This is true even if you file taxes separately, although exceptions are made for domestic abuse victims.
Balances for undergraduate degree loans are forgiven after you make 20 years of eligible payments. Balances for graduate and professional degrees, or a combination of graduate and undergraduate degrees, are forgiven after 25 years of eligible payments. In other words, if you only have undergraduate debt, you may want to consider PAYE because it has a shorter, 20- year repayment period.
Still, keep in mind that the IRS says forgiven student loans are taxable income. So if you qualify for student loan forgiveness under REPAYE, plan ahead and prepare for a potentially larger tax bill.
Any income-driven repayment plan has an important drawback: Your interest can keep accruing at a faster rate than you pay down your balance. With REPAYE, though, you have a bit of relief through the federal loan interest subsidy.
Here’s how it works: If your monthly payment is so low that it doesn’t cover the monthly interest charges, any excess interest on subsidized loans will be paid by the Department of Education for up to three years. After that time period, the Education Department will cover 50% of unpaid interest.The government also covers 50% of accrued interest charges on unsubsidized loans throughout the REPAYE repayment period.
If you decide to leave the REPAYE program — or no longer qualify because you failed to recertify your income by the annual deadline — interest will capitalize, which means you’ll owe any unpaid interest once you lose the federal interest subsidy. The interest will be added to your balance and you will have to repay that amount as part of your loan.
Still, if you are concerned about interest causing your loan balance to balloon to an unmanageable degree, REPAYE may be your best option. Its interest subsidy is more generous than other federal income-based repayment programs that offer assistance with interest.
Student loan borrowers often wonder exactly how REPAYE works with PSLF, the program that forgives federal student loan debt belonging to borrowers who work full-time for certain public service or nonprofit jobs. The good news is that you can be on the REPAYE program and still take advantage of PSLF, as you must have an income-based repayment plan to receive PSLF
REPAYE payments count toward the 120 payments that are required to qualify for PSLF. After that, your loans are erased.
If you work in the public or nonprofit sectors — and are currently under another type of repayment plan, like a 10-year Standard Repayment Plan — consider switching to an income-based repayment plan like REPAYE immediately. The reason? You’ll reach PSLF’s required 120 payments at the end of the Standard Repayment Plan’s 10-year payment period, and there will be no balance left for forgiveness.
PSLF covers a variety of employers, including AmeriCorps, Peace Corps and nonprofits involved in public interest law, health and disability services.
If you work for a qualifying employer and are also in a low-paying job, consider using REPAYE to manage your student loan debt and taking advantage of PSLF later.
In many cases, it’s possible to use REPAYE together with other student loan forgiveness programs. Once you get on a REPAYE plan to manage your monthly budget, research to see if you also qualify for other forgiveness programs.
Still, always double-check the requirements of the state and federal repayment programs to make sure that they are compatible with REPAYE.
In general, REPAYE is a good choice for:
- People who are single.
- Borrowers who are pursuing Public Service Loan Forgiveness (PSLF).
- Borrowers with only undergraduate school federal student debt.
- Borrowers who received loans before Oct. 1, 2011.
The good news is that once you’re on REPAYE, you don’t have to stick with it forever. You can pay off your student loans faster if you aren’t comfortable with debt. But deciding whether to pay down your student debt quickly is up to you.
Before deciding whether REPAYE is right for you, use a Revised Pay As You Earn calculator to get an idea of what your monthly payment might be with this repayment option. It’s also a good idea to take time to learn about other income-driven repayment plans and refinancing, and do what makes sense for your situation.
Marty Minchin contributed to this report.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.18% effective July 10, 2020.