Revised Pay as You Earn (REPAYE): What it is, how it works and who qualify.

· 3 min read

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Once you graduate from college after you have struggled to finance your education, you are faced with another dilemma; repaying the money you received to finance your education. However, there are many student loan forgiveness options to help you. One of the newer created programs is the Revised Pay As You Earn program.

This article will go over what this program is, how it works, and who can qualify for this program.

Student loan forgiveness

The way this works is that when you are no longer required to make payments on your loan, it is termed that it is forgiven. Generally, this is due to having a job that qualifies for forgiveness. However, this program opens the door to other ways to receive forgiveness and repay your loans.

How does Repaye work

Your maximum payment amount is based on your discretionary income. Discretionary income is determined by taking your adjusted gross income minus the poverty guidelines based on your family size and state of residence. Your adjusted gross income can be found on your federal tax return if filed within the past two years. If you haven’t filed a tax return in the last 2 years or if your current income is higher than what is on your federal tax return, then you will be required to submit “alternative documentation”, such as a pay stub.

Once your discretionary income is determined, your monthly payment is calculated by taking 10% of this amount and dividing it by 12. If this amount is less than $5 then your monthly payment would be set at $0 per month.

Once you have made on-time payments for 20 years(undergraduate loans), 25 years(graduate plus loans) the remainder of the loan balance will be forgiven.

Note: With Repaye, the income requirements do not apply. If you are married and file taxes together, the AGI that determines your discretionary income would be both incomes combined.

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What is Repaye

This is an income-driven repayment plan that is a revision of the pay as you earn program. The revised pay as you earn program makes it easier to qualify for the program. The original pay as you earn program was restricted to loans received after 2007 and disbursed after 2011.

This program caps your loan repayments at 10% of your discretionary income- no matter what that may be. Originally the pay as you earn program required you to prove that you were facing financial hardship to show that you couldn’t afford the monthly payment plans on the 10-year repayment plan.

To apply for the program, you fill out the Income-Driven Repayment Plan Request and use the IRS Data Retrieval Tool to obtain information from your federal tax return.

Who qualifies for Repaye

Qualifying for this program is easier than the original Pay as you earn program. All direct loans, even loans that are consolidated into direct loans, qualify for the program. If you are currently on a different incomedriven repayment plan, you can switch to this program provided that you make at least one payment on the Standard Repayment Plan or another reduced-payment forbearance plan.

Note: Payments that you make under other income-driven repayment plans or the Standard Repayment Plan, count as qualifying payments towards forgiveness under Repaye.

What doesn’t qualify

This program is only applicable to federal student loans. Private student loans do not qualify for this program. Defaulted loans are also ineligible for this program. Direct loans in default would need to be taken out of default status to qualify. The following loans are also ineligible:

  • Parent plus loans
  • Direct loan consolidation used to repay parent plus loans
  • Account numbers that begin with the letter ”C" do not qualify for this program.

Benefits of the program

Many benefits can be gained from considering this program such as:

  • Loan forgiveness after 20 or 25 years
  • There are no restrictions on disbursement dates, like many other repayment and forgiveness programs.
  • Depending on your income, family size, and poverty guidelines, your monthly payments could be lower than the payments on the standard repayment plan.
  • Subsidized interest payments to avoid the balance on the student loan debt from ballooning.

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Important things to consider about this program

  • This program can be used to manage your monthly student loan debt while qualifying for other forgiveness options
  • Payments in this program count towards the payment requirements needed for the Public Service Loan Forgiveness program.
  • Loans that are not eligible for the program can be consolidated into direct loans to qualify for this program.
  • You are required to update information such as income and family size each year.
  • Your payment amount can increase if your discretionary income increases. There are no income caps.
  • If you do not recertify your income by the due date, you are removed from the program. You will then be placed on an alternative repayment plan.

Summary

The Federal Student Aid website also allows you to calculate what your estimated payments could be under this program. You need to consider if this program would be a good fit for you. Consider all the benefits of this income-driven repayment plan, the main benefit being that this program will help you repay all aspects of your loan to prevent default and collections.

However, just like this program can help you it can also hurt you if you don’t comply with the terms and conditions of the program such as recertifying your income.

Conclusion

This program was introduced in 2015, as student loan debt is on the rise. Over 45 million Americans are in debt with student loans, and that number will continue to rise unless something is done to help those with debt. This program is not designed for everyone, however, it is an option for people searching for a way to handle their student loan debt.

If you are considering applying for this program, and you are unsure of how it can help your situation, speak with someone in our office that can help guide you in the right direction. Student loan debt can pile up and it gets worse when you are behind, therefore instead of risking defaulting on your loans, be proactive, and take action.

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