How Revised Pay As You Earn (REPAYE) Works
Updated On October 28, 2021
Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.
Revised Pay As You Earn (REPAYE) is the newest income-driven repayment plan for your federal student loans. The U.S. Department of Education offers income-driven repayment plans for your federal student loans, and they can lower your monthly student loan payment to as little as $0. There are four income-driven repayment plans:Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR).
Before you enroll in REPAYE, it’s important to understand the advantages and disadvantages of income-driven repayment plans. This will help ensure that you choose the income-driven payment plan that is best for you. In this guide, we will address everything you need to know about Revised Pay As You Earn (REPAYE).
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How Does Revised Pay as You Earn Work?
Revised Pay As You Earn (PAYE) is an income-driven repayment plan that caps your monthly federal student loan payment at 10% of your monthly discretionary income and forgives your remaining federal student loan balance after 20 years (undergraduate student loans) or 25 years (graduate student loans).
Payment Amount: 10% of your discretionary income.
Your discretionary income is equal to the difference between your adjusted gross income and 150% of the federal poverty guidelines based on your family size and state of residence.
You can use this Revised Pay As You Earn (PAYE) calculator to determine what your monthly payment and student loan forgiveness would be under REPAYE.
Repayment period: 20 – 25 years.
The repayment period for undergraduate student loans is 20 years. The repayment period for graduate student loans is 25 years.
- You can receive lower monthly payments based on what you earn
- REPAYE offers one of the lowest monthly payments of any income-driven repayment plan
- You can receive student loan forgiveness after 20 or 25 years
- You may pay more student loan interest
- You may pay off your student loans before you receive student loan forgiveness
- Any student loan forgiveness you receive may be taxable
How Do You Qualify For REPAYE?
To qualify for REPAYE, you don’t have to demonstrate financial need nor does it matter when you borrowed federal student loans. REPAYE is one of the easiest of the four income-driven repayment plans for which you can qualify.
What Student Loans Are Eligible For REPAYE?
There are several student loans that are eligible for REPAYE. Importantly, REPAYE is available only for Direct Loan borrowers.
Eligible Student Loans:
- Direct Loans (subsidized and unsubsidized)
- Direct PLUS Loans made to graduate or professional students (but not made to parents)
- Direct Consolidation Loans that did not repay any PLUS loans made to parents
Eligible Student Loans, if consolidated:
- Federal Stafford Loans (subsidized and unsubsidized)
- FFEL PLUS Loans made to graduate or professional students (but not made to parents)
- FFEL Consolidation Loans that did not repay any PLUS loans made to parents
- Federal Perkins Loans
How do you know if you have federal student loans?
If you have federal student loans, you can enroll in REPAYE at StudentLoans.gov. You can enroll in an income-driven repayment plan, including REPAYE, at any time. Alternatively, you can complete a paper form through your student loan servicer.
How do you know if you have federal student loans? Follow these steps:
- Check the National Student Loan Data System.
- You will need for Federal Student Aid ID, which you created when you applied for the Free Application For Federal Student Aid (FAFSA®).
- All your federal student loans will be listed in the National Student Loan Data System.
Alternatively, you can contact your student loan servicer, who can tell you whether you have federal student loans, private student loans or both. If you only have private student loans, you won’t qualify for an income-driven repayment plan. However, you can lower your interest rate and lower your monthly payment through student loan refinancing.
How Do You Enroll in REPAYE?
Once you verify that you have federal student loans, it’s time to enroll in REPAYE. You will need the following:
- Your Federal Student Aid ID
- Your social security number
- If you are married, your spouse’s social security number
- Recent pay stubs or a signed letter on company letterhead from within the last 90 days showing dates and hours worked
- Your spouse’s income and whether you spouse has student loans
Once you have this information, you will be asked several questions. Make sure to follow these steps:
1. Enter Personal Information
You will be asked to enter basic personal information.
2. Choose REPAYE
You can either choose an income-driven repayment plan, or you can have your student loan lender help choose the income-driven repayment plan that qualifies you for the lowest monthly payment. If you are ready to choose Revised Pay As You Earn, you should indicate whether you want to enroll in a new income-driven repayment plan, switch to a different income-driven repayment plan or resubmit the same information.
3. Enter information about your spouse and family
First, you will provide information about your family, including your children and dependents. Then, you will provide information about your spouse, including your spouse’s social security number, date of birth, income, whether your spouse has student loans and tax filing status. If you are not married, you will provide your income information.
4. Provide your income information
Next, you will provide your income information, which is supported by either a pay stub or letter from your employer. You can verify your adjusted gross income from your most recent federal tax returns. Alternatively, you can use the IRS Data Retrieval Tool, which will add your income information directly to your income-driven repayment plan application. If you did not file an income tax return, you can provide a paystub. If you are unemployed, you can provide documentation that shows your unemployment benefits.
5. Certify your request to enroll in REPAYE
Certify that you are requesting to enroll in REPAYE.
What Is the Best Income-Driven Repayment Plan?
The best income-driven repayment plan depends on your unique financial situation, circumstances and goals. The best income-driven repayment plan is typically the repayment plan with the lowest monthly payment. Rather than choose your own income-driven repayment plan, you can let your student loan servicer enroll you in the plan you qualify for with the lowest monthly payment. You can select this option when directly on the income-driven repayment plan application.
Is REPAYE Right for Me?
Revised Pay As You Earn (REPAYE) is the best income-driven repayment plan when:
- You are not married
- You expect your income to increase over time
- You do not have graduate school student loans
- You want to minimize interest accrual on your student loans
Is REPAYE A Good Idea?
The major difference between REPAYE and other income-driven repayment plans is REPAYE has an advantageous student loan interest subsidy. Here’s why. Income-driven repayment plans enable you to lower your monthly student loan payment to as low as $0. However, even though your monthly payment may be lower, student loan interest still accrues on your student loans. Income-driven repayment plans help to subsidize student loan interest while you repay your student loans.
REPAYE has the most generous student loan interest subsidy compared to other income-driven repayment plans. Here’s how REPAYE covers your student loan interest:
- REPAYE will pay all the difference on subsidized student loans.
- REPAYE will pay 50% of the difference on subsidized student loans during your first three years of student loan repayment.
- After three years, REPAYE will cover 50% of your student loan interest on both subsidized student loans and unsubsidized student loans.
What Are the Disadvantages of Revised Pay as You Earn?
There are several disadvantages of choosing Revised Pay As You Earn (REPAYE). However,it’s important to note that REPAYE offers relatively more favorable interest subsidies than other income-driven repayment plans such as Pay As You Earn (PAYE) and Income-Based Repayment (IBR).
Here are some disadvantage of Revised Pay As You Earn (REPAYE) and income-driven repayment plans:
- You might pay more for your student loans
- You may not receive student loan forgiveness
- You must recertify income each year
- Your student loan payments can increase
- You may owe income tax
You might pay more for your student loans
Income-driven repayment plans such as REPAYE do not lower your interest rate. Interest will accrue on your federal student loans, even if you pay less each month. Therefore, you could pay more in total interest with an income-driven repayment plan than you would under the Standard Repayment Plan. If you want to lower your interest rate, then consider student loan refinancing.
You may not receive student loan forgiveness
Revised Pay As You earn offers federal student loan forgiveness after 20 or 25 years. However, you may pay off your student loans before you receive any student loan forgiveness.
You must recertify income each year
When you enroll in Revised Pay As You Earn, you must recertify your income annually to determine your monthly payment and to ensure that you qualify for the same income-driven repayment plan. Annual recertification of income can take more time from your schedule.
Your student loan payments can increase
With Revised Pay As You Earn, your monthly payment may change. With a Standard Repayment Plan, you make the same fixed monthly student loan payment. With an income-driven repayment plan, however, your payments may increase over time if your income increases.
You may owe income tax
You may be liable for income tax on the amount of student loan forgiveness that you receive, since the federal government considers this income. An exception to this rule is if you enroll in Public Service Loan Forgiveness. If you receive federal student loan forgiveness through the Public Service Loan Forgiveness program, then you are not liable for income tax on the amount of student loan forgiveness that you receive.