REPAYE Plan 101

The Revised Pay As You Earn Repayment Plan (REPAYE Plan) is one of four income-driven repayment (IDR) plans the federal government offers for student loans. It’s different from other IDR plans because it requires that you pay 10% of your discretionary income. You will not be eligible for the REPAYE Plan if your loan is currently in default. Borrowers who aren’t in default and have an eligible federal student loan can make payments under the REPAYE Plan. Learn more about this plan below, including why its repayment period varies between 20-25 years. 

The REPAYE Plan in a Nutshell

The Revised Pay As You Earn (REPAYE) Plan is one of several income-driven repayment plans available for people with federal student loans. Qualified borrowers pay 10% of their discretionary income toward their student loans each month. Any remaining balance on undergraduate loans is canceled after 20 years. If any of the loans being repaid are graduate loans or professional school loans, such as for law school or medical school, the loans are canceled after 25 years. 

How Is Discretionary Income Calculated? 

Under the REPAYE plan, your discretionary income is the difference between your annual income and whatever 150% of the poverty guideline is for your family size in your state. You can use the U.S. Department of Education’s loan simulator tool to determine your discretionary income. To use this tool, you’ll need to provide your adjusted gross income as shown on your tax return (AGI).

You need to report your discretionary income calculation needs to the Department every year. If your family size changes, your income increases or decreases significantly, or you move to another state, the Department will recalculate your minimum monthly payment amount. These adjustments help to compensate for changes in your living situation. For example, if you start in a state where the cost of living is low and move to a state where the cost of living is high, your repayment amounts should be adjusted accordingly. 

The REPAYE Plan requires you to pay one of the lowest percentages of discretionary income allowed by the Department of Education. Under this plan, borrowers generally make anywhere from 240-300 monthly repayment installments over a 20-25 year period. The REPAYE Plan is particularly beneficial if you go through periods of unemployment and have no income or your income is lower than expected at any given time. When you have no income, you’re not expected to make any payments. When you don’t make much money, your payment burden will remain low as well. 

Pros and Cons of the REPAYE Plan

The REPAYE Plan comes with advantages and disadvantages.

REPAYE Plan Benefits

The major advantage of the REPAYE Plan is that your monthly is adjusted annually according to your income. You also have the freedom to switch between the various income-driven repayment plans if your financial situation changes. Anyone who is not in default on their student loans has the option to do this. Also, there are no maximum or minimum income requirements you must meet to be eligible for this plan, and it’s more widely available than some other repayment options. For example, you don’t have to be pursuing a career in public service.

REPAYE is also extremely flexible. Your monthly payment changes with your financial situation. And if you plan to take a government job, your payments under the plan count toward the 120 installments necessary to become eligible for the Public Service Student Loan Forgiveness (PSLF) program. 

Downsides of the REPAYE Plan

The primary disadvantage of the REPAYE Plan is that your payments are spread out over a far longer period than in other repayment plans. This means you’ll often end up paying more in interest. Though your debt will eventually be forgiven, you may have to pay income tax on the forgiven debt at the end of your repayment period. Additionally, because there’s no cap on how much you can be required to pay, you’ll potentially pay more per year during periods that you’re earning a lot of income than you would under other plans. 

Finally, if you’re married, your spouse’s income will be considered in determining your monthly payment. So, if your spouse earns a lot of money, even if you don’t, your monthly payment will be high. Under some other repayment plans, only your income is considered when calculating your monthly payment.

Eligibility for the REPAYE Plan

Most student loan borrowers are eligible for the REPAYE Plan, including: 

• DIRECT loan borrowers of both subsidized and unsubsidized loans

• DIRECT Plus loan borrowers who were graduate or professional students 

• DIRECT Consolidation loan borrowers

Note that parents who take out the previously mentioned loans for their children are not eligible for the REPAYE plan. 

There’s no income threshold for eligibility. Borrowers must certify their income every year. Their annual certification will determine their monthly payment for the next 12 months. If you enter this plan and fail to certify your income, you will be removed from the REPAYE Plan and placed on an alternative, standard repayment plan with a 10-year  repayment period.

Eligibility if Loan Has Been Consolidated

You’re eligible to enter the REPAYE Plan if your loan has been federally consolidated and you have a subsidized or subsidized Federal Stafford loan from the Federal Family Education Loan (FFEL) program. You’re also eligible if your loan has been federally consolidated and you took out a FFEL PLUS loan for graduate or professional school or a FFEL Consolidation Loan. In addition, you’re eligible if your loan has been federally consolidated and you took out one or more Federal Perkins loans. You will not be eligible for the REPAYE Plan if you have privately refinanced your federal loans.  

Alternatives to the REPAYE Plan

If the REPAYE plan isn’t right for you, there are other options available to you. Make sure to research the different plans and figure out what makes the most sense for your situation before committing anything. Your other options include the Standard Repayment Plan, the Graduated Repayment Plan, and the Extended Repayment Plan. 

Long-Term Repayment Options

Long-term repayment plan options include the Pay As You Earn Repayment Plan (PAYE), the Income-Based Repayment Plan (IBR Plan), the Income-Contingent Repayment Plan (ICR Plan), and the Income-Sensitive Repayment Plan (ISR Plan). 

To qualify for PAYE, you must be a new borrower and your payment must be less than what you would pay under the 10-year Standard Repayment Plan. You will meet this requirement if your federal student loan repayment burden under the Standard Plan is a significant portion of your annual income. The repayment period for the PAYE Plan is 20 years. 

The IBR Plan also requires that your payment be less than what you would pay under the 10-year Standard Repayment Plan. If you’re a borrower with a Family Federal Education Loan, this is one of the only plans you’ll be eligible for. The repayment period for the IBR Plan is 20 years if you’re a new borrower on or after July 1, 2014, or 25 years if you’re not a new borrower on or after July 1, 2014. 

The ICR Plan is open to any borrower with eligible federal student loans. Your monthly payment will be the lesser of 20 percent of your discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted to fit your income. The repayment period for the ICR Plan is 25 years. 

The ISR Plan is open to borrowers of FFEL program loans that are not eligible for public service loan forgiveness. A borrower’s monthly payment is based on their annual income, and their loan is repaid over 15 years.

Certain borrowers, such as workers for federal, state, local, and tribal governments, are eligible for the Public Service Loan Forgiveness program. The U.S. Department of Education has made significant changes to PSLF in 2020, including allowing a borrower to make future payments on qualifying federal student loans, which are counted toward the person’s PSLF qualifying payment count. All student loan repayment plans require annual income certification to maintain eligibility. The loan simulator tool from StudentAid.gov can help you figure out what your payment will be under these different plans. 

Short-Term Debt Relief Options

If you’ve fallen on hard times and you have a federal student you, you have additional short-term options, including:

• Loan forbearance, which involves temporarily paying back your loan at a lower rate or pausing your payments.

• Loan deferment, which involves not making a payment for a certain period. 

You can request loan forbearance and loan deferment if you’ve experienced economic hardship, enrolled in an approved graduate program, are undergoing cancer treatment, or are in active military service. The downside of entering into forbearance or deferment is that you aren’t making progress on paying back your loans. Also, interest can accrue during a deferment. 

Deciding Between Different Plans 

It isn’t always easy to know which repayment option is the best for you. Considering your options carefully and weighing the pros and cons of each can help. To start, consider your expected career path and review your loan amounts and loan types. Will you be making much more money in the near future than you’re making now? Or will your income remain relatively stable? What kinds of payments do you think that you can afford? 

If you still feel lost after evaluating your financial future, consider connecting with your loan servicer, which you can locate by logging into the My Federal Student Aid portal. Your loan servicer can likely walk you through which plan would work best over the next decade, given your anticipated financial situation. 

Let’s Summarize...

The REPAYE Plan is one of many student loan repayment plans that might make sense for you. This option best suits borrowers who aren’t married to someone who earns significant income and who don’t expect to earn a much higher income than they do now over the next two decades. The REPAYE Plan offers greater flexibility than the other three income-driven repayment plans and doesn’t have any income eligibility requirements. Due to its long repayment term, it isn’t the best option for everyone. But, it may be the best option for you. Compare your repayment options to make the best choice for your unique situation.