Do you plan to move to the REPAYE repayment plan? Do not make a decision before reading this guide. We understand that every borrower wants to find a solution to their debt concerns. However, uninformed borrowers can take the wrong steps, which will make their debt challenges even worse. If you do not choose the most suitable repayment plan, you will end up paying more money for extended periods. This guide discusses the details of the Revised Pay as You Earn plan for federal student loan borrowers. For simplicity, we compare this plan with other Income-driven repayment options to give you some idea about your options.
However, to choose the right repayment plan, you need more than a guide- you have to discuss your options with the loan servicer and third-party debt experts. Unfortunately, not all loan servicers provide high-quality services, and they can mislead you. Hence, unbiased recommendations from a third-party debt specialist like those in Student Loans Resolved can be more useful.
What is Revised Pay As You Earn?
Revised Pay as You Earn (REPAYE) is one of the repayment plans available to federal student loan borrowers. This plan is accessible to anyone with Direct subsidized/unsubsidized PLUS or consolidation loans. Keep in mind that Direct consolidation loans do not involve PLUS loans.
Under this plan, the borrowers are required to repay 10% of the monthly discretionary income as a monthly debt obligation. Discretionary income is calculated after deducting necessary living costs and taxes from the income. This exact monthly student loan payment rate is renewed every year by considering the family size and income level.
Once the borrower repays the debt for 20 or 25 years, the rest of the debt will be forgiven. If you got the loan for undergraduate studies, the Revised Pay as You Earn plan will take 20 years to eliminate the debt fully. For graduate or professional studies, this period is increased to 25 years.
Advantages and Disadvantages of REPAYE
We will compare this repayment plan with others, but for now, let’s focus on general benefits and drawbacks. Revised Pay as You Earn is one of the subcategories under the Income-Driven Repayment plan, together with Pay as You Earn, Income-based, Income-Contingent, and Income-Sensitive plans. As the name suggests, Income-Driven plans consider the income level as the base for rate calculations. In other words, if you earn more, you will be required to pay more. Otherwise, borrowers with low-income levels can even get a $0 payment monthly.
This dependence on income is one of the greatest benefits of the Revised Pay as You Earn program. As it considers the income level, there is a high likelihood that the monthly payment rate will fit your budget, and you will easily pay back the loan.
Meanwhile, the payback period of 20-25 years can seem a long period. There exist programs like Standard or Graduated programs that can grant repayment for ten years. Besides, the forgiven amount after the payback period can be taxable.
Just because the Revised Pay as You Earn depends on your income level does not mean that you will get the lowest rates. Before you decide on any repayment plan, it is advisable to use the Loan Simulator tool on the official Student Aid website. This tool allows borrowers to determine roughly their monthly payment amounts under different programs. By using this tool, you can find the repayment plan that provides the lowest rates.
The Payback Period Details
Previously, it was mentioned that the Revised Pay as You Earn plan requires 20-year payback for undergraduate and 25-year payback for graduate loans. However, these periods can be subject to changes. For example, depending on your rise in income and debt to income ratio, you might be able to pay out the debt faster. In general, a loan servicer is responsible for monitoring the monthly payments and informing the borrower if he/she gets closer to the forgiveness period.
Besides, Revised Pay as You Earn can be required for borrowers who want to utilize Public Service Loan Forgiveness. This program grants forgiveness for 120 payments which takes a minimum of 10 years. Hence, such borrowers can repay the debt quicker than 20-25 years.
Additionally, if you face economic challenges and utilize forbearance or student loan deferment, the months of non-payment will also count for the payback period.
Some repayment plans require fixed amounts per month. However, with Revised Pay as You Earn, you will be required to update income and family size information to adjust your monthly payment rate. The update happens each year. The borrower should provide the necessary information and documentation to the loan servicer to recalculate the payment amount. Even if there is no change to income or family size, the borrower is still required to recertify these details.
In general, loan servicers should notify their borrowers that it is time to recertify. In this case, the borrower submits another application for the Revised Pay as You Earn program but notes that it is only for recertification. Unfortunately, there have been cases when borrowers complained that their loan servicers failed to inform them and they missed recertification.
Please, be informed that the consequences of failing recertification are undesirable (which we will discuss in the next section). Therefore, keep communication with the loan servicer and closely follow the deadlines.
Mandatory recertification happens every year. However, before this deadline, if there is a significant change in income or family size, you can update the information. For example, if you lost your job, you can immediately ask the loan servicer to recalculate the monthly payment for Revised Pay as You Earn. Again, you need to submit another application and indicate the reason as the need for recalculation.
What If I do not Recertify income?
We already mentioned that recertification for Revised Pay as You Earn is necessary, and you should not miss it. In case you fail, you will lose your access to the REPAYE plan. Instead, the borrower will be placed in an Alternative Repayment plan.
This plan does not depend on the income level, and it requires a fixed amount that could repay the debt in 10 years. Even worse, any unpaid interest will be capitalized. As a result, you will pay interest for a higher principal amount, making you lose money in the long term.
Which Loans Qualify for REPAYE?
We previously mentioned that Direct loans qualify for this repayment plan. In this section, we will dive into the details of qualified loans to give you accurate information. If you have Direct, Subsidized/Unsubsidized/PLUS/Consolidation loans (without PLUS), you can utilize the Revised Pay as You Earn plan. If you have FFEL Subsidized/Unsubsidized loans, you can consolidate them to get eligible. FFEL PLUS loans for graduate studies and Perkins loans can also qualify through consolidation. However, certain loans will not qualify under any condition:
- Direct PLUS loans made to a parent
- Direct and Consolidate Loan for PLUS loans made to a parent
- FFEL PLUS made to a parent
- FFEL and Consolidation Loan for PLUS loan made to a parent
What is Consolidation?
The guide mentioned consolidation several times, which you might not be familiar with. Consolidation means combining multiple loans into one. As a result, you get a single loan. Therefore, it becomes easier for you to manage the repayment. Besides, the new interest rate is generated by considering the weighted average of existing loans, which means you would not save much.
Although consolidation is free of charge, you should be careful before utilizing this technique. Sometimes, consolidation can make you ineligible for student aid opportunities, specifically if you have Perkins loans. Hence, before consolidation, read the details carefully or contact a debt specialist like those we work with in Student Loans Resolved.
How to Apply for REPAYE?
Before you choose a plan, you should first contact the loan servicer if you have any questions. It is the responsibility of the loan servicer to guide you and advise if the plan is the right fit. However, not all loan servicers are reliable and provide high-quality service. Hence, it is advisable to do your research or get third-party help from debt management experts to make the best decision.
Application to Revised Pay as You Earn repayment plan happens through the loan servicer’s application form. This form allows the borrower to choose the desirable repayment plan. Besides, the application requires documentation to certify income level and family size. Income level is usually determined by the Adjusted Gross Income, pay stub, or simply input the income level.
However, the right documentation depends on the case. For example, if you filed a federal income tax return during the last two years and your income level is similar to those reported in your tax return, Adjusted Gross Income is the right approach. Yet, if you have not filed for an income tax return, you can use your pay stub to prove the income level. Lastly, if you do not work or receive untaxed income, you can simply indicate it in the application without supporting documents.
What Happens after Application?
It usually takes a few weeks for the loan servicer to review your application and make changes. During this time, you can stop the repayment process if you ask the loan servicer to provide student loan forbearance status. Forbearance is a temporary non-collection period. During this period, the borrower is not required to repay the debt. However, keep in mind that the debt will continue to accrue interest.
I have a Defaulted Loan. Am I Eligible for REPAYE?
Unfortunately, defaulted loans do not qualify for the Revised Pay as You Earn repayment plan. You have to get your loans out of default status before applying for this repayment option. There exist several options to eliminate student loan default status, including loan rehabilitation and consolidation.
Student Loan Rehabilitation
Loan rehabilitation allows borrowers to get out of default by repaying the debt nine times during ten months. This option is accessible to Direct and FFEL loan borrowers. The loan holder determines the repayment amount, which is around 15% of discretionary income for the year divided by 12. Once you pay this amount for nine months voluntarily and within 20 days of the due date, you can say goodbye to the default status.
The loan holder for Direct Loans is the Education Department. Hence, the application is as follows. First, you need to send your tax return or transcript by mail or fax to the Education Department. During the ten days after the ED receives the information about your income and spending level, it will send you the rehabilitation agreement. You need to sign it and send it back to start your nine-month repayment period. Keep in mind that you can utilize this option only once.
Student Loan Consolidation for Default
We have already explained how consolidation works in previous sections. Before you can access consolidation, you have to make three qualifying payments. The new consolidated loan will not have a default status. Compared to loan rehabilitation, consolidation will not erase the default record from your credit history.
However, it can be more accessible for borrowers in financial difficulties rather than rehabilitation. Yet, discuss your options with debt experts before making any decisions because the fit of rehabilitation or consolidation change based on individual characteristics.
I have a Private Loan. Am I Eligible for REPAYE?
Unfortunately, your private student loans will not qualify for the Revised Pay as You Earn plan. You need to discuss your repayment plan options with your lenders. Best private student loan lenders provide several student loan repayment options. For example, students might be able to defer payments during studying or utilize interest-only payments. Besides, fixed low payments can also be accessible for students. However, your options will change depending on the lender. Check your loan terms for further information or contact your lender.
If you notice that your lender does not deliver favorable repayment plans, you can move to another lender. This action can be done through Student Loan Refinancing. Refinancing involves getting a new loan and using the proceeds to pay back the existing loan. In this way, you will start dealing with a new lender who offers better loan terms. New lenders can ask for lower interest rates or give you access to fixed or variable-rate loans, depending on your preference.
More on Refinancing
Private companies provide refinancing. It is possible to refinance both federal and private loans. However, if you have federal loans, you need to think twice. Even if you do not like Revised Pay as You Earn, you can still access many other federal loan repayment plans. Refinancing your loan will make you ineligible for these programs.
The eligibility conditions for refinancing involve stable income and high credit performance. Usually, a credit score of 600 or more is desirable to ensure that the borrower is accountable for the debt.
However, understandably, not all students will meet these conditions. Hence, many lenders require a cosigner, a third party who can guarantee the repayment if the borrower fails to do so. A cosigner can be a family member or a friend. The main condition is that the cosigner should also meet the eligibility criteria of stable income and high credit performance.
When to Refinance?
If you have federal loans, you can refinance only when you know that there is no better option provided by the government. Besides, private borrowers can refinance under several circumstances. For example, if the market interest rates decrease, you can refinance to enjoy new low rates compared to your high-interest obligation. Additionally, if you have improved your credit performance since your first disbursement of the loan, you can refinance. Borrowers with better credit histories usually qualify to lower interest rates.
Some borrowers can be unsatisfied with variable-rate payments, which fluctuate a lot during periods of changing interests. Hence, they prefer to refinance student loans to enjoy the benefits of fixed-rate loans. In all cases, keep in mind that discussing your options with the debt experts will help you to make the best decision.
Which Income-Driven Repayment Plan Should I Choose?
If you are unsure about the Revised Pay as You Earn plan, you can check other Income-Driven plans. As all subcategories of Income-Driven Repayment are based on income level, they will fit your budget. However, their loan coverage conditions, repayment period, or rate can be different.
Revised Pay as You Earn vs. Pay as You Earn
Although both repayment plans belong to Income-Driven plans, there exist differences between these two options. First, we mentioned Revised Pay as You Earn (REPAYE) requires 10% of your discretionary income. Pay as You Earn (PAYE) also requires 10% of the discretionary income. However, there is a difference. With PAYE, you will never pay more than what is required under the 10-year Standard Plan. Besides, it takes only 20 years to repay the debt under the PAYE plan.
Similar to Revised Pay as You Earn, any remaining balance will be forgiven. Another point of Revised Pay as You Earn vs. Pay as You Earn is that not all borrowers qualify for PAYE. Only if you have taken loans after October 2007 and received the disbursement of the Direct Loan after October 2011 can you apply for PAYE. Additionally, your debt to income ratio should be high.
Revised Pay as You Earn vs. IBR
Another subcategory of Income-Driven repayment is Income-Based Repayment (IBR). In this section, we will compare the Revised Pay as You Earn repayment plan with IBR. Similarly, IBR also requires a high debt to income ratio. Differently, the monthly payment amount can be higher. If you received the loan on or after July 2014, the rate would be 10% of discretionary income, like Revised Pay as You Earn.
However, borrowers who got loans before this period will face a 15% rate. The payback period also changes based on this limitation. New borrowers repay the debt in 20 years, while others have a payback period of 25 years. Other conditions like recertifying the income or paying tax from the forgiveness are the same.
Revised Pay as You Earn vs. ICR
Income-Contingent repayment (ICR) is also available to federal loan borrowers. Anyone with Direct Subsidized/Unsubsidized/ PLUS(for students) and Consolidation loans can qualify for the program, mostly similar to Revised Pay as You Earn.
Differently, parent borrowers can utilize this repayment plan if they consolidate the debt. The program requires either 20% of the discretionary income or fixed payment over 12 years, depending on which one is lower. Similarly, you need to update income and family size information. Lastly, your remaining debt will be forgiven after 25 years.
Revised Pay as You Earn vs. Income-Sensitive Repayment
The final option under Income-Driven repayment is an Income-Sensitive repayment plan. This program is an excellent opportunity for borrowers with FFEL loans. Hence, if you plan to apply for PSLF, be aware that you will not be eligible for this program. It usually takes 15 years to repay the debt. The monthly payment amount depends on income level, but your loan is fully paid in 15 years.
This guide explained the details of the Revised Pay as You Earn (REPAYE) program and compared it to other Income-Driven plans. If you want to move to this program, it is advisable to read the details carefully. Besides, you will make the best decision if you contact student debt experts like those we gathered under Student Loans Resolved roof.
Whether Revised Pay as You Earn or not, the right decision depends on the unique characteristics of your debt obligations and your finances. There is no ‘one fits all solution for debt resolution. Hence, an expert should analyze these elements and suggest the most suitable option. Otherwise, you can find yourself in a worse situation than before. You can contact us now for a free consultation. Let us see what we can do to get you out of debt quickly.