Revised Pay-As-You-Earn (REPAYE) Repayment Formula
REPAYE = 10% (AGI - 150% x Poverty Line) / 12
When monthly budgets are stretched thin, income-driven repayment plans are designed to help you affordably pay your federal student loans. The new Revised Pay As You Earn (REPAYE) Repayment Plan — launched on December 17, 2015 — offers one of the most generous repayment benefits to date. And it is available to all Federal Direct Loan borrowers with eligible loan types. In a nutshell, the plan allows you to pay 10% of your discretionary income each month, and your remaining undergraduate student loan balance, if any, will be forgiven after 20 years (or 25 years if you have graduate student loan debt) of qualifying repayment. Now for the part that gets really interesting…how it works.
How it Works
- Payments will be capped at no more than 10% of your ^&*discretionary income*&^, or if married 10% of your combined discretionary income. There is no income requirement to qualify. If you are a high-wage earner, you will not be penalized if you’re still struggling to afford your student loan payments.
- If you have an eligible Federal Direct Loan made to you, the student, including a Direct Consolidation Loan, you may qualify. Perkins loans and FFEL (Federal Family Education Loans) do not qualify. If this is a concern, something to consider would be adding your FFEL and Perkins loans to a Direct Consolidation Loan and then applying for REPAYE on the consolidated loan. But strongly consider the advantages and disadvantages of consolidation first.
- Any loan balances that are forgiven after 20 or 25 years will be treated as taxable income.
- You will need to recertify your eligibility every year under REPAYE to remain in the program. This means you need to update your income information so your payments can be recalculated.
- If your monthly payment amount under REPAYE is less than the amount of interest that accrues each month, a government-paid subsidy will kick in. For up to 3 consecutive years, starting from the date you begin repaying your loans under the REPAYE plan, the government will cover all of the unpaid interest on your subsidized loans, and half the unpaid interest after the initial 3-year period. They will cover 50% of the remaining interest for any unsubsidized loans from day one.
Let’s look at a quick example:
Question: What if I currently have no income?
Answer: Technically, your payments can be zero if you have no income. But remember that your loan balance does not decrease until you begin making payments and the payment amounts are enough to begin reducing the principal balance.
Question: Will my payments under REPAYE count towards the 120 payments required for the Public Service Loan Forgiveness Program (PSLF)?
Question: What if I’m married? Will REPAYE consider my spouse’s income?
Answer: Under the REPAYE plan, your spouse’s income will count towards your monthly payment calculation, regardless of whether or not you file your taxes jointly or separately.
Question: Are PLUS Loans eligible for REPAYE?
Answer: Parent PLUS Loans and consolidation loans that included Parent PLUS loans are not eligible. But Direct PLUS loans for graduate students are eligible.
Question: How do I apply for REPAYE?
Answer: Go to www.studentloans.gov and have your Federal Student Aid ID handy. (It is easy to create an FSA ID if you don’t have one). Click on the link for “Complete Income-Driven Repayment Plan Request” and choose REPAYE in the “Income-Driven Repayment Plan” section. Submit the online form or print the paper version and mail it to your loan servicer.
Question: How can I estimate my monthly payment under REPAYE?
Answer: Use the Repayment Estimator on the Federal Student Aid website.