REPAYE vs. PAYE: Which Student Loan Repayment Plan Is Better?
Compare the pros and cons of these income-driven repayment plans
PAYE and REPAYE are both income-driven repayment (IDR) plans available for federal student loans. They set required student loan payments based on income and family size—rather than loan balance and length of repayment. You can change your federal student loan repayment plan at any time, and credit has no impact on your eligibility for any options.
PAYE, which stands for the Pay As You Earn Repayment Plan, was introduced in December 2012 to give federal student loan borrowers an affordable repayment option that capped payments based on income. REPAYE, or Revised Pay As You Earn, was introduced in December 2015 as an alternative to PAYE with similar payments, but some key differences in benefits and requirements.
Since payments are basically the same on REPAYE vs. PAYE, which should you choose? Learn about the two IDR plans to help find your best option.
REPAYE vs. PAYE Similarities
- Monthly payment calculation: These income-driven repayment plans calculate your monthly payment as 10% of your discretionary income, which is your adjusted gross income (AGI) minus 150% of the poverty guideline for your family size.
- Eligible loan types: Direct subsidized loans, unsubsidized loans, direct consolidation loans that didn’t repay PLUS loans made to a parent, and PLUS loans borrowed by the student are eligible for each repayment plan.
- Annual recertification: They both require you to recertify annually, at which point monthly payments are recalculated with updated income and family size information.
- Student loan forgiveness: Each plan offers student loan forgiveness for the remaining balance after making 20 to 25 years of payments. Student loan balances forgiven through PAYE or REPAYE plans may be counted as taxable income, requiring you to pay taxes on the amount paid off.
IDR plans, such as PAYE and REPAYE, stretch out repayment beyond the 10-year Standard Repayment Plan, and can therefore increase the total cost of your loan relative to staying on the 10-year Standard plan. This is because you’re charged interest on a higher principal amount for a longer period of time.
REPAYE vs. PAYE Benefits
|REPAYE Benefits||PAYE Benefits|
|Expanded interest subsidy for unpaid interest||Forgiveness after 20 years|
|No student loan disbursement date requirement||Spousal income is excluded when filing taxes separately|
|No income or hardship requirement||Monthly payments are capped|
|Unpaid interest does not capitalize|
REPAYE Pros Explained
- Expanded subsidy for unpaid interest: Since both plans determine your monthly payment based on income (and not the standard principal-plus-interest calculation), your monthly payment may not cover all accrued interest. However, both PAYE and REPAYE provide a subsidy that pays any outstanding interest on subsidized student loans (after payments are applied) for the first three years on either plan. But REPAYE offers an expanded interest subsidy—it pays 50% of remaining interest charges on unsubsidized loans (during all periods) and on subsidized loans after the three-year period ends.
- No student loan disbursement date requirement: Unlike PAYE, which is only open to newer borrowers, REPAYE doesn’t limit eligibility by when federal student loans were disbursed.
- No income or hardship requirement: You don’t need to meet income requirements or demonstrate financial hardship to qualify. (Payments increase with income, with no cap, which means higher-income borrowers might pay more on REPAYE than on a 10-year Standard plan.)
- Unpaid interest does not capitalize: As long as you remain on REPAYE, unpaid interest does not capitalize, or get added to your principal balance. (Unpaid interest remains on your account, but is not included when future interest payments are calculated.) Payments are applied to outstanding interest first and then principal. Interest will be capitalized if you choose to leave REPAYE or fail to recertify.
PAYE Pros Explained
- Forgiveness after 20 years: Borrowers can be forgiven all student debt on the PAYE Repayment Plan after 20 years of payment, regardless of whether funds were borrowed for an undergraduate or graduate degree.
- Spousal income can be excluded: If you’re married and want to have payments based on your income alone, PAYE allows this if you file taxes separately.
- Payments are capped: PAYE limits monthly payment amounts to not exceed what you’d pay on a 10-year Standard Repayment Plan.
REPAYE vs. PAYE Drawbacks
|REPAYE Drawbacks||PAYE Drawbacks|
|Payments aren’t capped||Only open to newer borrowers|
|Forgiveness for graduate student loans takes 25 years||Partial financial hardship required|
|Married borrowers’ payments are based on joint income||Interest may be capitalized|
REPAYE Cons Explained
- Payments aren’t capped: If your income increases, your monthly payment will increase with no cap. Some borrowers might end up paying more on REPAYE than they would on the 10-year Standard Repayment Plan.
- Forgiveness for graduate loans takes 25 years: If you borrowed for graduate or professional studies, you need to make 25 years of payments before you’re eligible to have the remaining balance forgiven. This is relative to 20 years on a PAYE plan. (Balances on undergraduate student loan balances under REPAYE can still be forgiven after 20 years.)
- Married borrowers’ payments are based on joint income: Both you and your spouse’s incomes are used to calculate monthly payments, whether you file your taxes jointly or separately.
PAYE Cons Explained
- Only open to newer borrowers: To be eligible for PAYE, you must have borrowed your first federal student loan after Oct. 1, 2007, and have had a disbursement of a direct loan after Oct. 1, 2011.
- Partial financial hardship required: You can only enroll in PAYE if your income is low enough that your payments on this plan are lower than what they’d be on the 10-year Standard plan.
- Interest may be capitalized: If your payments reach the cap—what you’d pay on a 10-year Standard Repayment Plan—interest will be capitalized even if you stay on PAYE and recertify each year. But the amount of interest capitalized is limited to no more than 10% of your student loan balance when you enrolled in PAYE.
When to Pick REPAYE vs. PAYE
If you have student loans eligible for both REPAYE and PAYE, which should you choose? The answer may depend on your student loan goals, and whether you expect your income to change or increase during repayment.
Choose REPAYE if…
- You don’t meet the PAYE income or loan origination eligibility requirements
- You want a subsidy that covers 50% to 100% of unpaid interest amounts
- You don’t want to worry about unpaid interest being capitalized (meaning, paying interest on unpaid interest amounts)
- You expect your income to remain low enough that payments won’t exceed what you’d pay on a 10-year plan
Choose PAYE if…
- You want your monthly payments capped so they’re no more than what you’d pay on a 10-year repayment plan
- You’re married, but want payments based on your income only (you must file taxes separately)
- You have graduate student loans and plan to pursue 20-year forgiveness
If you commit to one payment plan, you’re not locked in. Borrowers can apply with their servicer to switch to any federal repayment plan they’re eligible for at any time. Just be aware that interest is capitalized any time you change repayment plans.
Use the Federal Student Aid’s Loan Simulator tool to project your costs on different repayment plans, including monthly payments and total amounts repaid to help determine which repayment plan is right for you.
Federal Student Aid. "If Your Federal Student Loan Payments Are High Compared to Your Income, You May Want to Repay Your Loans Under an Income-Driven Repayment Plan." Accessed Nov. 2, 2020.
Federal Student Aid. "Do You Have Questions About the Different Types of Income-Driven Repayment Plans?" Accessed Nov. 2, 2020.