Search
  • TitanPrep News

PAYE/REPAYE Student Loan Plans: How They Work. Whom They Are Best

Updated: Jun 3

Pay As You Earn (PAYE) and its newer equivalent Revised Pay As You Earn (REPAYE) are two of the four ICR options offered. Although REPAYE is usually easier to qualify for, PAYE may be a better alternative for you when student loans are due, depending on your circumstances.


The Department of Education recently released an update to the PAYE repayment plan for federal student loans. Although the update brings some much-needed relief to struggling borrowers, it also creates some new challenges.

The biggest change is the elimination of the interest subsidy. Under the old rules, PAYE borrowers were never responsible for paying more than 10% of their disposable income in student loan payments. However, the new rules state that borrowers will be responsible for all interest that accrues on their loans, regardless of their income.


This change will cause borrowers' monthly payments to increase, in some cases by hundreds of dollars. For example, a borrower with $50,000 in student loans and a $50,000 salary would have seen their monthly payments increase from $179 to $372 under the new rules.

The good news is that the Department of Education is giving borrowers a three-year grace period to adjust to the new payments. Borrowers who are struggling to make their new monthly payments can request a temporary forbearance or deferment.


Despite the challenges posed by the revised PAYE repayment plan, it is still the best option for many federal student loan borrowers. If you are struggling to repay your student loans, make sure to explore all of your repayment options before giving up hope.


If you're having trouble making your federal student loan payments, you might want to consider enrolling in an income-driven repayment plan.


To be eligible for PAYE, you must have taken out your first federal student loan after October 1, 2007, as well as a Direct Loan or a Direct Consolidation Loan after October 1, 2011.



What you need to know about PAYE vs. REPAYE

TABLE OF CONTENTS

What is the difference between PAYE and REPAYE?

Choosing between PAYE and REPAYE is a difficult task.

Deciding between PAYE and REPAYE Loan Repayment

Alternatives to PAYE and REPAYE

What is the difference between PAYE and REPAYE?

PAYE student loan repayment and REPAYE student loan repayment programs both reduce your monthly student loan payment to 10% of your disposable income. Each of these is also a repayment plan that qualifies for student loan forgiveness programs such as Public Service Loan Forgiveness. The following are some of the most critical aspects of each plan.


Revised Pay As You Earn Repayment Plan (REPAYE)

  • Direct Loans only

  • Excludes Parent PLUS and Consolidation Loans that repaid a previous Parent PLUS

Pay As You Earn Repayment Plan (PAYE)

  • For Direct Loans only

  • Excludes Parent PLUS and Consolidation Loans that repaid a previous Parent PLUS


PAYE


The PAYE student loan program is more difficult to qualify for than the REPAYE student loan plans. It does, however, provide perks that REPAYE does not if you have graduate student debts or are married.


PAYE: What You Should Know

Your monthly payment will be capped at 10% of your discretionary income on a monthly basis. This payment cannot be more than what you would pay on a standard 10-year payback plan each month. Remember that if you're married but file your taxes separately, your spouse's income won't be factored towards your payment.


Qualifications: PAYE is available on the majority of federal Direct Loans taken out since October 1, 2011. To be eligible, you must also show that you are experiencing a temporary financial hardship.


Only if a borrower has a partial financial hardship can they choose the Pay As You Earn repayment option. The borrower's total monthly loan payments are limited to 10% of the amount by which his or her AGI exceeds 150 percent of the poverty threshold applicable to his or her family size, divided by 12.

Payback time: You'll have 20 years to repay your loans.

These terms may make PAYE a better alternative than REPAYE, as you may have a lower monthly payment and a shorter repayment period. However, you won't be eligible for PAYE unless you can show a partial financial hardship.

REPAYE


REPAYE student loan plans are available to the majority of people who have taken out federal direct loans. This is due to the fact that there is no necessity to demonstrate financial hardship. REPAYE's benefits, on the other hand, aren't as generous as PAYE's.

REPAYE: What You Should Know

Your monthly payment will be capped at 10% of your discretionary income, but unlike PAYE, these payments can be larger than your usual 10-year monthly payment. Even if you file your taxes separately, your spouse's earnings will be included in your total earnings. REPAYE is available to every borrower who has qualified for a loan.


Regardless of changes in your income, your REPAYE payment is always based on your income and family size. This implies that if your income rises over time, your payment may be more than it would be under the 10-year Standard Repayment Plan in some situations.

Repayment time: If you have undergraduate loans, you will have a 20-year repayment schedule. With graduate student loans, you'll have a 25-year repayment period.

TIP: If you're not sure whether the PAYE or REPAYE loan repayment plan is preferable for you, TitanPrep can assist you with determining which option will save you money on your monthly payment. They also can address any questions you may have regarding your loans or eligibility. More information is also available on the CFPB website.

Deciding between PAYE and REPAYE Loan Repayment Consider the following factors while picking between PAYE and REPAYE loan repayment.

  • If you are experiencing a temporary financial crisis, PAYE may be a better option than REPAYE student loan plans. You're only eligible for REPAYE if you don't have a partial financial hardship, making this an obvious choice.

  • You anticipate an increase in your earnings in the future: If your income rises, you may lose your PAYE eligibility and be compelled to change plans. This may have unintended implications, such as interest capitalization. In this scenario, enrolling in REPAYE might be a good idea.

  • The majority of your student loans are unsubsidized: If that's the case, REPAYE may be a better option because you'll obtain interest subsidies even on unsubsidized loans.

  • You are eligible for both PAYE and REPAYE if you meet the following criteria: If you qualify for both, PAYE is usually the superior option because you'll get more generous monthly payment reductions.

  • You're married and submit separate tax returns: Single borrowers are treated the same in both plans. If you're married, however, you'll have to think about how your spouse's income may affect your plan when student loans are due. If you file taxes separately, your spouse's income will not be taken into account when computing your monthly payment under PAYE. Your spouse's income will be counted under REPAYE regardless of how you pay your taxes.


How to Enroll in PAYE or REPAYE

  • Choose the option that makes the most sense for you.

  • Apply for the income-driven repayment plan of your choice.

  • Continue to make your loan payments as usual until you get confirmation that your application for income-driven repayment has been granted.

  • Make the necessary changes to your monthly installments.

  • Annually, recertify your income.

Alternatives to PAYE and REPAYE Loan Repayment


If you aren't eligible for the PAYE or REPAYE Plans, or if you want to pay off your student loans in a different method, here are some more choices to consider when student loans are due:

Parent PLUS Loan Forgiveness are not eligible for PAYE or REPAYE student loan plans, because they can't be combined with other federal loans.

If you consolidate your Parent PLUS Loans into a Direct Consolidation Loan, however, you'll be eligible to have your Parent PLUS Loans forgiven through Income-Contingent Repayment (ICR) plans, another income-driven repayment option.

Keep in mind that any changes in your family size or income may cause your monthly payment to increase (or decrease).


Are you unsure which income-based repayment plan is best for you?

De-stress Your Life and Student Loans Before the Pause Ends- Contact us today

to determine which type of forgiveness is best for you.

31 views