REPAYE Made Simple

 

Drowning in federal student loan debt? Don’t panic — you’re not doomed to spend the rest of your life slurping Ramen and sleeping in your parents’ basement while barely chipping away at your monthly payments…

Thankfully, the U.S. Department of Education (DOE) has finally released the details of its latest income-driven repayment plan, the Revised Pay-As-You-Earn (REPAYE) plan. This plan has the potential provide unprecedented relief to millions of those struggling with federal student loans who are ineligible for the Pay-As-You Earn (PAYE) plan.

Here’s what you need to know:

Increased Eligibility.
PAYE is currently limited to what the DOE refers to as “new borrowers,” therefore icing out numerous student loan borrowers who have been in repayment for an extended period of time or simply have older student loans. The REPAYE program places no such restrictions on borrowers, opening up the program to millions. However, REPAYE is not available for Parent PLUS or non-Direct federal student loans.

Monthly Payments.
REPAYE payments, like PAYE payments, are capped at 10% of a borrower’s discretionary income. Notably, REPAYE is significantly cheaper than the Income-Based Repayment (IBR) plan, which caps its payments at 15%.

Repayment/Forgiveness.
REPAYE treats loan forgiveness differently. For borrowers who only took out undergraduate federal student loans, the repayment term is 20 years, and the remaining balance is forgiven. For borrowers who took out graduate federal student loans, the repayment term is 25 years. Similar to the other income-driven plans, forgiven amounts are taxable unless the borrower is also enrolled in the Public Service Loan Forgiveness program, in which the remaining balance is forgiven (tax-free) after 10 years.

Married Borrowers.
Under the other income-driven plans, a borrower can file taxes independently from his or her spouse, which is beneficial for married couples where one spouse has a higher federal student loan debt but a lower income. However, under REPAYE, federal student loan services only consider a couple’s joint martial income, potentially canceling out previous savings.

Access to Existing Programs.
Thankfully, borrowers currently in the other income-driven plans don’t have to switch to REPAYE; therefore, it’s imperative bowers understand how different programs benefit different situations.

Caps on Interest.
Under REPAYE, if a borrower’s monthly payments don’t cover that month’s accrued interest, the total accrued interested will be capped at 50% of the unpaid interest. Although this isn’t a perfect solution, it will slow down negative amortization.

Release Date.
December 16. Although you might be tempted to apply for REPAYE as soon as it debuts, it might make more sense to wait for any kinks to be worked out. Regardless, this is a personal decision, and we, at Goodbye Loans, look forward to helping you navigate your options.

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