Revised Pay As You Earn (REPAYE)
First available to borrowers in December 2015, REPAYE is a federal income-driven repayment (IDR) plan available to all student loan borrowers with federal Direct loans.
Payments are always 10% of your Discretionary Income and are made for a maximum of 300 monthly payments over 25 years if you have graduate school loans. Any amounts remaining after 300 monthly payments are forgiven (treated as canceled debt and subject to federal and state income tax).
Check STUDENTAID.GOV to confirm your federal student loan types. Upload your NSLDS file into the VIN Foundation My Student Loans tool to determine your REPAYE eligibility.
If you have older federal student loans that are not Direct loans, you may be able to utilize a Direct federal consolidation loan in order to have many or all of your federal student loans qualify for REPAYE. Visit StudentLoans.gov for more information on the federal student loan consolidation process.
Major Considerations: REPAYE is designed for those who do not qualify for Pay-as-you-Earn (PAYE). However, it may also make sense for certain borrowers who do qualify for PAYE.
- Only Direct Loans will qualify for repayment under REPAYE, regardless of the disbursement date.
- There is no partial financial hardship (PFH) test. Under IBR and PAYE, you have to demonstrate a PFH in order to qualify for a payment based on your income.
- Switching from IBR or PAYE into REPAYE will result in the capitalization of unpaid interest.
- The maximum repayment period is 25 years under REPAYE for those with graduate school loans, (i.e., veterinarians). If you switch from ICR/IBR/PAYE into REPAYE, you will get “credit for time served” under those repayment programs.
- REPAYE provides a very generous interest benefit. Only 50% of the unpaid interest not covered by your monthly payment is charged to your student loan account. This can greatly reduce the amount of interest that accumulates during the course of repayment.
- REPAYE adds even more confusion for married borrowers. You must provide your spouse’s income with REPAYE, regardless of how you file your taxes. This is different from how spouse's income can be handled under IBR and PAYE.
- Annual income and family size documentation is required in order to continue using REPAYE.
- Payments made under REPAYE still count towards Public Service Loan Forgiveness (PSLF), the same as they have under IBR and PAYE.
Calculating Your Payment Due Under REPAYE
Discretionary Income is a specific measure used by the federal government, defined as 150 percent of the poverty level as determined by the U.S. Department of Health and Human Services (HHS). Written as a formula:
|
Discretionary Income = Your Income – (150% × HHS federal poverty guidelines)
|
Let’s use the above formula to calculate your 2022 Discretionary Income for a family size of one and an AGI of $100,000 (maybe from 2021 tax return). The 2022 HHS federal poverty guideline for a family size of 1 is $13,590:
|
Discretionary Income = $100,000 – (1.5 × 13,590) = $79,615
|
Your monthly payment due under REPAYE is 10% of your Discretionary Income divided by twelve:
|
REPAYE = 0.10 × $79,615 = $7,962 per year or $7,962 ÷ 12 = $663 per month
|
This calculation reflects your MINIMUM monthly payment due under REPAYE. You can always pay more if you can afford it. However, depending on your situation, it may not make financial sense to do so, especially if you do not anticipate paying your loans off in full prior to forgiveness.
To remain in REPAYE you must provide yearly documentation of your income and family size. If you fail to provide timely documentation, your payment will revert to an alternative repayment plan, likely utilizing a calculation to ensure that your loan is paid in full based on the number of years you have remaining in REPAYE. When you are converted to an alternative repayment plan, any unpaid interest will be capitalized thereby increasing your principal balance. Payments made under this alternative repayment plan will count towards forgiveness, however, they do not count towards PSLF.
Interest Accumulation During Repayment
Monthly payments due under REPAYE are often less than the interest that accrues each month. This is called negative amortization. With a low enough income (ie. during an internship, residency, maternity leave, job loss/change, etc), it is possible to have a minimum monthly payment equal to zero. These zero amount payments still count towards the 300 monthly payments due prior to forgiveness.
Under REPAYE, during periods of negative amortization, only 50% of the unpaid interest will be charged to your loan balance. This will greatly reduce the unpaid interest balance remaining at forgiveness. Any unpaid principal and interest balance remaining after 300 monthly payments over 25 years is forgiven (or “canceled”) and treated as taxable income. The tax liability will depend on the amount forgiven and your federal and state marginal income tax rates during the year of forgiveness.
Unpaid Interest Example for One Year of Repayment Using REPAYE
- Your starting federal loan repayment balance = $200,000 @ 6%
- Your income = $1000,000, Your family size = 1, and your REPAYE payment due = $663 per month
|
Payment #
|
Loan principal
|
Interest accumulation per month
|
Min monthly payment
|
50% of unpaid Interest charged to loan balance
Cumulative Unpaid Interest
|
|
1
|
$200,000
|
$1,000
|
$663
|
$1000-$663=$337 * 0.50 = $168
|
|
2
|
$200,000
|
$1,000
|
$663
|
$336
|
|
3
|
$200,000
|
$1,000
|
$663
|
$504
|
|
4
|
$200,000
|
$1,000
|
$663
|
$672
|
|
5
|
$200,000
|
$1,000
|
$663
|
$840
|
|
6
|
$200,000
|
$1,000
|
$663
|
$1,008
|
|
7
|
$200,000
|
$1,000
|
$663
|
$1,176
|
|
8
|
$200,000
|
$1,000
|
$663
|
$1,344
|
|
9
|
$200,000
|
$1,000
|
$663
|
$1,512
|
|
10
|
$200,000
|
$1,000
|
$663
|
$1,680
|
|
11
|
$200,000
|
$1,000
|
$663
|
$1,848
|
|
12
|
$200,000
|
$1,000
|
$663
|
$2,016
|
Generally speaking, paying more than the minimum amount due under REPAYE will result in higher total repayment costs. If you are not able to pay your loans off in full prior to forgiveness, you’ll usually end up paying more in total than if you pay the minimum and save for the potential tax on forgiveness due after you reach the maximum repayment period. The more loan balance that you can push into forgiveness, the more you’ll reduce your total repayment costs, as long as you plan and save for the anticipated tax on canceled amounts. See the Forgiveness FAQ for more information.