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PAYE vs. REPAYE Student Loan Repayment
If you found yourself here, you are most likely among the 42 million Americans who have student loans. Perhaps you are figuring out how to pay those loans back through income-driven repayment plans such as PAYE and REPAYE. For some, the differences between PAYE vs. REPAYE can be confusing. Both plans share many similarities, and the differences are subtle, but significant. This can make choosing the right plan a challenge, but worry not. Keep on reading to learn more about PAYE vs. REPAYE.
Income-driven repayment plans
PAYE, which stands for “Pay as you earn,” and REPAYE, which stands for “Revised pay as you earn,” are two of the four income-driven repayment plans offered by the government on federal student loans. These plans are alternatives to the standard 10-year repayment plan, and they are intended to lower your monthly payments.
There are pros and cons to income-driven repayment plans. They will lower your monthly payments, but extend your payment period. This means you might end up paying more than you would have on the standard 10-year plan because of interest.
All income-driven repayment plans offer forgiveness of your remaining balance after the payment period. This may sound attractive, but you could pay off your balance before reaching that point.
Choosing a PAYE or REPAYE plan depends on your income and the amount of debt you have. First, talk to your loan servicer to learn more about whether an income-driven repayment plan is right for you.
Also recommended: Best Student Loan repayment plans in 2021
PAYE vs. REPAYE: The similarities
Both of these plans are applicable only to federal student loans. If you have private loans, your repayment plan will not reflect them. The loans that you can repay through PAYE and REPAYE are the same:
- Federal subsidized and unsubsidized loans
- Direct PLUS loans made to professional or graduate students
- Direct consolidation loans that were not used to pay PLUS loans made to parents
- Consolidated subsidized or unsubsidized FFEL Program loans
- Consolidated FFEL Program loans that were not used to pay PLUS loans made to parents
- Consolidated Federal Perkins Loans
Any PLUS loans made to parents or loans used to pay PLUS loans made to parents are not eligible to be repaid under these plans.
PAYE and REPAYE both generally cap your monthly payments at 10% of your monthly income. Both also take your family size into consideration. Each year, you will have to re-certify your income and family size under both plans. Each plan has different consequences for failing recertification, but both have the consequence of capitalization of unpaid interest.
Related: Can I defer my loans if I go to grad school?
On the PAYE and REPAYE plans, there may be times when your monthly payment does not cover the interest that accrued since your last payment. With both of these plans, the government will pay 100% of the remaining unpaid interest on subsidized loans for up to three years from when you started the plan.
PAYE vs. REPAYE: The differences
You are eligible for the PAYE plan if your monthly payments, based on income and family size, would be less than what you would pay on the standard 10-year plan. If your payments would be higher on the PAYE plan, you are not eligible because it would not benefit you.
Additionally, you must be a new borrower. This means that you did not have any outstanding balance on direct loans or FFEL Program loans at the time you received your loans on or after October 1, 2007. You must also have received disbursement of a direct subsidized or unsubsidized loan, a direct PLUS loan, or a direct consolidation loan on or after October 1, 2011.
On the other hand, anyone who is eligible to take out federal student loans is eligible to enroll in the REPAYE plan.
Under PAYE, your payment will be 10% of your income, and will never exceed what you would have paid monthly on the 10-year repayment plan. If your income increases to the point that your monthly payments exceed the 10-year plan payments, your monthly payments switches to the amount that they would be on the 10-year plan.
Monthly payments will no longer be based on your income. Payments made while in the PAYE program, whether or not they are based on your income, will count as qualified payments made during the repayment period.
With REPAYE, your monthly payments will generally not exceed 10% of your income, but there is no limit to what the payments would be. If your income increases significantly, your monthly payments could exceed what you would have paid on the 10-year plan.
For PAYE, your payment period will be 20 years.
For REPAYE, your payment period will be 20 years if all your loans were used for undergraduate study. If your loans were used for graduate or professional school, your payment period will be 25 years. If you go to graduate or professional school and take out loans while paying on the 20-year REPAYE plan, your payment period will increase to 25 years.
If you fail to re-certify on the PAYE plan, you will remain in the program, but your payments will return to the amount that they would have been on the 10-year plan. The unpaid interest on your loans will capitalize, not to exceed 10% of your loan balance when you entered the program.
If you fail to re-certify on the REPAYE plan, you will be removed from the program and placed on an alternative repayment plan. Your monthly payments will be based on the amount necessary to repay your loan in full by whichever comes first: 10 years from the date you began repaying under the alternative plan or the end of your 20- or 25-year REPAYE payment period. When placed on this alternative plan, you can choose to remain on it or switch to a different plan, if you’re eligible for it. Your unpaid interest capitalizes, with no limit, if you don’t re-certify.
Over all, on either plan, you want to be sure that you meet the recertification deadline.
For PAYE, your spouse’s income and debt will only influence your monthly payments if you file a joint tax return.
For REPAYE, your spouse’s income and debt will influence the amount you pay. This applies whether or not you file your taxes together.
Choosing your plan
So, which student loan repayment is better for you? The PAYE or the REPAYE? That depends on your eligibility, income, debt balance, and marital status.
Married and/or have a larger debt
If you are married and/or have a larger debt, the PAYE plan is favorable. This is because your spouse’s income won’t influence your monthly payment. There is a limit to how large the payments can be. The PAYE plan would also be better if you have graduate or professional school loans.
Single and have and/or expect a higher income
If you are single and have and/or expect a higher income, REPAYE would be better. There is no limit to how much you can pay so, as your income increases, you will stay eligible for the program. REPAYE also has no eligibility requirements; you don’t have to be a new borrower.
In order to enroll in any income-driven repayment program, you must submit an application to your loan servicer. You can find the application on the Federal Student Aid site. Remember, you have the option to indicate which plan you want, or you can advise your loan servicer to place you on whichever would serve you best.
Learn more: How to consolidate and refinance student loans