What Is the REPAYE Plan?
The Revised Pay As You Earn Repayment Plan is one of four income-driven repayment plans offered by the federal government through the U.S. Department of Education, having been introduced in December 2015. It's similar to the other plans in that it ties monthly student loan payments to income and family size, which can give many borrowers a chance to secure lower student loan payments. Although it sets monthly payments at 10% of discretionary income, with no cap, it doesn't impose an income requirement, making it accessible to a wide range of borrowers.
If your monthly payment is calculated to equal less than $5, your required monthly payment owed is $0. If it is between $5 and $10, your required monthly payment is $10.
How the REPAYE Plan Works
All federal income-driven repayment plans set your monthly student loan payment as a percentage of your discretionary income, which is your adjusted gross income (AGI) minus a certain percentage of the federal poverty guideline for your state and family size). That said, the REPAYE Plan has unique characteristics:
- Monthly payments: Under the REPAYE Plan, student loan costs are generally set to 10% of a borrower's discretionary income, then divided by 12 to get the monthly payment. For this plan, discretionary income is calculated as the difference between a borrower’s AGI and 150% of the poverty guideline for their state and family size. For example, let's say that you have $50,000 in eligible federal student loan debt, and your annual AGI is $40,000. In 2022, the federal poverty guideline for a family of one is $13,590 in the 48 contiguous states and the District of Columbia. As 150% of that figure is $20,385, your discretionary income is $19,615 ($40,000 minus $20,385). Ten percent of that figure is $1,961 making your monthly student loan payment $163 ($1,961 divided by 12). On a 10-year Standard Repayment Plan with an interest rate of 6%, you'd pay $555 per month, or $392 more each month.
- Spousal income: The plan sets payments based on both your and your spouse's incomes and federal student loan balances, regardless of whether you file jointly or separately. But the plan does provide an exception to this rule. It will use the individual income to set payments for a married borrower who is separated from their spouse or has no access to the spouse’s income.
- Repayment period: In addition, REPAYE limits how long borrowers will repay balances. Student loan forgiveness is granted on the remaining balance after 20 years for undergraduate student loans repaid on REPAYE. But if a borrower is repaying any loans that were granted for graduate or professional studies, forgiveness is granted after 25 years of repayment.
- Student loan interest: The plan provides student loan interest assistance to cover the unpaid interest when your monthly payment is less than the interest that accrues on your loan (known as "negative amortization"). The plan covers all of the assessed interest on subsidized loans that are not paid by monthly payments, for up to three years. The federal government pays 50% of these unpaid interest costs on unsubsidized loans with no time limits. It also pays 50% of leftover interest for subsidized loans once the initial three-year period of full payments ends.
Student loan debt forgiven or discharged between 2021 and 2025 is tax-free, due to the American Rescue Plan of 2021.
Requirements for the REPAYE Plan
Before switching to the plan, review these eligibility requirements to see if you qualify for it:
- No income threshold: You don't have to earn a particular income to qualify for the REPAYE Plan.
- Qualifying federal student loans: Most borrowers can enroll in REPAYE if they have eligible federal student loans, including Direct Subsidized and Direct Unsubsidized Loans, Direct PLUS Loans extended to graduate or professional students, and Direct Consolidation Loans. Direct PLUS Loans made to parents are ineligible for REPAYE, as are loans that were used to repay or consolidate federal student loans made to parents.
- Annual income recertification: Although you don't need a particular income to enroll in the REPAYE Plan, all income-driven repayment plans, including REPAYE, require you to report your updated income and family size to your loan servicer each year. Your monthly payment may be recalculated if these figures change.
Once you decide that the plan is right for you, submit an Income-Driven Repayment Plan Request on the Federal Student Aid website, which should take only 10 minutes but must be completed in a single session. You can also obtain the paper form from your loan servicer.
When you apply online, you'll need to select the REPAYE Plan from among the income-driven repayment plans and supply your AGI or alternative income documentation. It will usually take your loan servicer a few weeks to process your request.
Alternatives to the REPAYE Plan
There are three other income-driven repayment plans available for federal student loans:
- Pay As You Earn (PAYE): This is similar to the REPAYE Plan, albeit more stringent in its requirements. Your payments still amount to 10% of your discretionary income but are capped at the amount you would pay under the 10-year Standard Repayment Plan. In addition, you must have taken out your first federal student loan after October 1, 2007, and you need to have taken out a Direct Loan or Direct Consolidation Loan after October 1, 2011. You'll also need to prove that your payment (based on your income and family size) would be less than what you'd pay under the 10-year Standard Repayment Plan.
- Income-Based Repayment (IBR): Payments are 10% of your discretionary income if you were a new borrower on or after July 1, 2014, but are capped at the 10-year Standard Repayment Plan amount. If you weren't a new borrower within that time frame, your payment is 15% of your discretionary income, up to the 10-year Standard Repayment Plan amount. And again, you're only eligible if your payment under the IBR plan would be less than what you'd pay under the Standard Repayment Plan.
- Income-Contingent Repayment (ICR): Any borrower with eligible student loans can make payments under this plan. Your payments amount to the lesser of 20% of your discretionary income (defined for this plan as your AGI minus 100% of the federal poverty guideline) or what you'd pay under a 12-year repayment plan. This is also the only plan that allows parent PLUS Loan borrowers to consolidate a loan and repay it under the ICR Plan.
Unlike IBR and PAYE, REPAYE does not cap monthly payment amounts. This means that if your income increases enough over time, monthly REPAYE payments could exceed what you would pay under the 10-year Standard Repayment Plan.
Is the REPAYE Plan Worth It?
Below are some signs that the plan is worthwhile:
- You don’t meet the income requirements for the PAYE or IBR Plan.
- Your monthly payments will be lower than the student loan interest assessed each month. In this case, the plan will help pay for the unpaid interest.
REPAYE might not be a great fit if one of the following situations applies:
- You have Parent PLUS Loans and aren't eligible for the REPAYE Plan. In this case, consider consolidating these loans to become eligible for the ICR Plan.
- You’re married and want payments based on your income alone. This is possible with PAYE, IBR, or ICR if you file separate tax returns.
- You have loans from a graduate or professional program but don’t want to wait 25 years for loan forgiveness. PAYE and IBR offer forgiveness after just 20 years of repayment.
- Your income might increase a lot in the coming years, and you’re worried about your income-driven payments rising with it. Look into PAYE or IBR, which cap monthly payments.
- The REPAYE Plan is an income-driven repayment plan for federal student loans that sets payments at 10% of discretionary income, with no cap, and a repayment period of 25 years maximum.
- Benefits include student loan forgiveness beyond the repayment period and assistance in paying unpaid interest arising from negative amortization.
- The plan has no income requirement, but borrowers must take out one of many eligible federal student loans and recertify their income every year.