REPAYE: How it works and is it right for you?

REPAYE: How it works and is it right for you?

REPAYE: How it works and is it right for you?

When comparing income-based repayment options for student loans, REPAYE (Revised Pay as You Earn) might catch your eye if you're looking for low monthly payments.

This program bases your monthly payments on your income, potentially allowing some much-needed breathing room in your budget. Compared to other income-driven repayment plans, there are several features that make REPAYE attractive when you're overwhelmed by student loan payments.

If you have private student loans, however, you should head to a multi-lender marketplace Credible to see if you can lower your monthly payments with a student loan refinance. Insert some simple information ( your loan balance) into Credible's free online tools to see if you can reduce your payment and cut down your loan debt quicker today.

For those with federal loans considering alternative loan repayment plans REPAYE, here are some simple questions you should ask.

  • How does the REPAYE plan work?
  • Is REPAYE a good idea?
  • Is REPAYE right for me?
  • Should I consider other loan repayment plans?

How does the REPAYE plan work?

The REPAYE (Revised Pay as You Earn) option is designed primarily to help you lower your monthly loan payments.

It's similar to other income-driven repayment plans but with some key differences:

  • For eligible loans, the monthly payment is 10% of income over 150% of the poverty line. “In other words, if you earn less than 150 percent of the poverty line, you don't pay anything,” said Robert Farrington, creator of The College Investor. 
  • REPAYE also subsidizes interest on student loans for some borrowers. If your monthly payment doesn't cover the interest that accrues on your loans, the federal government picks up the tab during your first three years of enrollment in the program. “After that, the government will pay for half of that interest,” said Farrington. “If you have unsubsidized loans, the government will pay for half of the interest that's due.” 
  • Revised Pay as You Earn allows you 20 years to pay off undergraduate loans and up to 25 years for graduate loans. 

Here's an example of what your payment might look under REPAYE. Assume that you graduated with $26,946, which is the average debt load for students attending four-year public schools, according to the Department of Education. Your starting salary is $40,000 a year and you're not expecting to get a raise any time soon. 

If you choose the REPAYE program, your monthly payments would be $177 and you'd pay your loans off in 20 years. The standard repayment program would help you become student debt-free in 10 years, but your monthly payment would be almost $100 more, at $272 per month.

If this loan repayment plan doesn't make sense in your situation, consider checking out your student loan refinance options via Credible. A student loan refinance can help private student loan borrowers lower their monthly student loan payments and make loan debt more manageable.


Is REPAYE a good idea?

REPAYE may be better suited to some borrowers than others for managing student loans.

You may consider using this program if:

  • You took out Direct Loans or consolidated Stafford and Federal Family Education Loans into a Direct Loan.
  • You're single and don't expect your household income to increase significantly in the long-term. 
  • You're interested in Public Service Loan Forgiveness. 
  • You have graduate school debt but don't want to take 25 years to pay it off. 
  • You don't qualify for other income-driven repayment options. 

Keep in mind that not every loan is eligible for REPAYE. Direct Parent PLUS loans, Direct Consolidation loans that include PLUS loans and Perkins loans aren't covered by this repayment option. Whether it makes sense for you can depend on how much debt you have, your income and your primary goal in managing student loans.

Is REPAYE right for me?

“The program can be great for some, but there are some drawbacks,” said Farrington. “For one, you must always use your combined adjusted gross income if you're married, which may raise your monthly payment.”

In that scenario, you'd be better off considering other income-driven repayment plans, such as Income-Based Repayment or Income-Contingent Repayment.

The key is understanding what you can realistically afford to pay. Income-Contingent Repayment, for instance, limits payments to 20 percent of your discretionary income so using the numbers from the earlier example, your monthly payment would be $195.


Should I consider other loan repayment plans?

Aside from income-based repayment plans, there are other ways to lower monthly student loan payments, such as:

  1. Student loan refinance
  2. Debt consolidation loans
  3. Graduated repayment

1. Student loan refinance

A student loan refinance can help you secure a lower interest rate (especially given today's low loan rates) and reduce your monthly payments.

A student loan refinance can help make your loan debt easier to deal with and can potentially even cut the life of your loan. Just remember: This is a better option for those with private student loans.

If you have federal student loans, make sure to do your research (as you could lose some federal benefits) before you refinance.

Keep in mind that loan rates vary greatly between lenders, so be sure to use a tool Credible to shop around.


2. Debt consolidation loans

Debt consolidation allows you to combine multiple loans into one, which can help make monthly payments for federal loans more manageable. Comparing loan consolidation and refinancing can help you figure out which one yields the most benefit.

You can visit Credible to find the best loan rates and decide what debt it makes sense to pay.


3. Graduated repayment

Graduated repayment starts your payments off low using your current income, then increases them as you earn more money. Extended repayment does something similar, with payments increasing periodically every two years.

“There is no one-size-fits-all program, so make sure you do your research and decide what’s best for you,” said Farrington.



Pros and Cons of Income-Driven Repayment Plans for Student Loans

REPAYE: How it works and is it right for you?

Income-driven repayment plans are payment options for many federal student loan borrowers. As the name suggests, if you enroll in an Income-Driven Repayment plan, your monthly payment is your income and family size.

The monthly payment on an income-driven repayment plans will be lower than the standard repayment plan. The payment may even be zero for borrowers with low or no income. There are many benefits of income-driven repayment plans, but also some drawbacks to consider, too.

The lower loan payments may make income-driven repayment plans a good option for borrowers who are struggling to repay their student loans, especially after the end of the COVID-19 payment pause. 

However, even though the remaining debt is forgiveness after 20 or 25 years in repayment, the loan forgiveness may be taxable. 

What Is Income-Driven Repayment?

Income-driven repayment plans base the monthly loan payment on the borrower’s income, not the amount of debt owed. This can make the loan payments more affordable if your total student loan debt is greater than your annual income.

There are four income-driven repayment plans.

These repayment plans differ in the percentage of discretionary income, the definition of discretionary income and the repayment term, among many other details. Discretionary income is the income that remains after subtracting allowances for mandatory expenses, such as taxes and basic living expenses. 

This chart below illustrates some important differences in the various income-driven repayment plans.

See also: What are the Differences Between ICR, IBR, PAYE Student Loan Repayment

Here are some pros of income-driven repayment plans:

Another repayment option if you’re unemployed

Income-driven repayment plans are good for borrowers who are unemployed and who have already exhausted their eligibility for the unemployment deferment, economic hardship deferment and forbearances. These repayment plans may be a good option for borrowers after the payment pause and interest waiver expires. Since the payment is your income, your payment could even be $0.

Lower monthly payments

Income-driven repayment plans provide borrowers with more affordable student loan payments. The student loan payments are the your discretionary income. These repayment plans usually provide borrowers with the lowest monthly loan payment among all repayment plans available to the borrower. 

Generally, borrowers will qualify for a lower monthly loan payment under income-driven repayment if their total student loan debt at graduation exceeds their annual income

Payments could be $0

Low-income borrowers may qualify for a student loan payment of zero. The monthly loan payment under an income-driven repayment plan is zero if the borrower’s adjusted gross income is less than 150% of the poverty line (IBR, PAYE and REPAYE) or 100% of the poverty line (ICR). If your monthly payment is zero, that payment of zero still counts toward loan forgiveness. 

Borrowers who earn the federal minimum wage, which is currently $7.25 per hour, and work 40 hours per week earn less than 150% of the poverty line for a family of one. Borrowers who earn $15 per hour earn less than 150% of the poverty line for a family of three. 

See also: My IDR Payment is $0. Now What?

The remaining balance is forgiven

After 20 or 25 years in repayment, the remaining student loan balance is forgiven. The repayment term depends on the type of income-driven repayment.

The repayment term is 25 years for ICR and IBR, and for borrowers who have graduate school loans under REPAYE. The repayment term is 20 years for PAYE and for borrowers who have only undergraduate loans under REPAYE.

However, this balance is taxed unless you qualify for public service loan forgiveness.

The income-driven repayment plans provide tax-free student loan forgiveness after 10 years for borrowers who qualify for public service loan forgiveness (PSLF).

To qualify, the loans must be in the Direct Loan program while being repaid in an income-driven repayment plan and the borrower must work full-time in a qualifying public service job or a combination of qualifying public service jobs.

PSLF eliminates debt as a disincentive to pursuing a public service career.

The economic hardship deferment counts toward the 20 or 25-year forgiveness in income-driven repayment plans, but not toward public service loan forgiveness.

Interest is paid on subsidized loans

The federal government pays all or part of the accrued but unpaid interest on some loans in some of the income-driven repayment plans. 

  • During the first three years, the federal government pays 100% of the accrued but unpaid interest on subsidized loans in IBR, PAYE and REPAYE and 50% of the accrued but unpaid interest on unsubsidized loans in REPAYE. 
  • For the remainder of the repayment term, the federal government pays 50% of the interest on all federal student loans in REPAYE. All other interest remains the responsibility of the borrower and may be capitalized if it remains unpaid, depending on the repayment plan. 

Credit scores aren’t negatively impacted

Income-driven repayment plans will not hurt the borrower’s credit scores. Borrowers who make the required monthly loan payment will be reported as current on their debts to credit bureaus, even if the required payment is zero. 

Disadvantages of Income-Driven Repayment Plans

Although income-driven repayment plans help borrowers who experience financial difficulty, these repayment plans come with several disadvantages.

You might not qualify

Eligibility for income-driven repayment is limited mostly to federal student loan borrowers. 

Federal Parent PLUS loans are not directly eligible for income-driven repayment, but may become eligible for ICR by including the Parent PLUS loans in a Federal Direct Consolidation Loan.

Most private student loans do not offer income-driven repayment plans. Although IBR is available for both FFELP and Direct Loans, ICR, PAYE and REPAYE are available only for Direct Loans. 

See also: Are Parent Loans Eligible for Income-Driven Repayment?

Your total balance can increase

It is possible for student loans to be negatively amortized under the income-driven repayment plans. Negative amortization occurs when the loan payments you are making are less than the new interest that accrues that month. This causes the loan balance to increase.

This won’t matter much, if the borrower eventually qualifies for loan forgiveness. But, still, borrowers may feel uneasy seeing their loan balance increase, since they will be making no progress in paying down their debt. 

You’ll pay taxes on your forgiven balance

Un forgiveness with Public Service Loan Forgiveness, the loan forgiveness after 20 or 25 years in an income-driven repayment plan is taxable under current law. The IRS treats the cancellation of debt as income to the borrower.

In effect, the taxable student loan forgiveness substitutes a smaller tax debt for the student loan debt. There are several options for dealing with the tax debt.

  • If the borrower is insolvent, with total debt exceeding total assets, the borrower can ask the IRS to forgive the tax debt by filing IRS Form 982. 
  • The taxpayer might propose an offer in compromise by filing IRS Form 656.   
  • The final option, other than paying off the tax bill in full, is to seek a payment plan of up to six years by filing IRS Form 9465 or using the Online Payment Agreement Tool. The IRS charges interest on the payment plans. The borrower may be required to sign up for auto-debit if the tax debt is $25,000 or more. 

See also: Common Mistakes Involving Income-Driven Repayment Plans

It could be a confusing process

There are too many income-driven repayment plans, making it harder for borrowers to choose which plan is best for them.

There are many details that differ among the income-driven repayment plans. PAYE provides the lowest monthly payment, but eligibility is limited to borrowers with loans disbursed since October 1, 2011.

For other borrowers, either IBR or REPAYE will offer the lowest cost, but which is best depends on borrower specifics, such as whether the borrower is married or will eventually get married, whether the borrower’s income will increase, and whether the borrower has any federal loans from graduate school.

Married borrowers could have a higher payment

Some of the income-driven repayment plans suffer from a marriage penalty. If the borrower gets married and their spouse has a job, the monthly loan payment may increase.

If you file a joint return, the loan payment is the combined income of you and your spouse.

With ICR, IBR and PAYE, the loan payment is just the borrower’s income if the borrower files federal income tax returns as married filing separately.

However, filing a separate tax return causes the borrower to miss out on certain federal income tax deductions and tax credits, such as the Student Loan Interest Deduction, American Opportunity Tax Credit (AOTC), the Lifetime Learning Tax Credit (LLTC), the Tuition and Fees Deduction, the Education Bond Program and various child and adoption tax credits.

With REPAYE, the loan payment is joint income regardless of the tax filing status. 

See also: Whose Income Counts for Income-Driven Repayment Plans?

Payments can increase

Loan payments will increase as income increases under certain income-driven repayment plans. There is no standard repayment cap on the loan payments in the ICR and REPAYE repayment plans, so loan payments can increase without bound as income increases.

See also: How to Reduce Loan Payments in an Income-Driven Repayment Plan

You need to qualify every year

There is an annual paperwork requirement. Borrowers must recertify their income and family size every year. If you miss the deadline, your loans will be placed in the standard repayment plan. If you file the recertification late, the accrued but unpaid interest will be capitalized, adding it to the loan balance. 

See also: How Do I Recertify for Income Driven Repayment for Student Loans?

If you’re seeking forgiveness, it’s a long time to carry debt

The repayment term of 20 or 25 years is more than half of the average work-life for college graduates.

Some borrowers have compared the repayment plans with indentured servitude, saying that it feels they are in debt forever.

Certainly, borrowers who choose an income-driven repayment plan will be in debt longer than in the standard repayment plan and may pay more interest due to the longer repayment term. 

Borrowers in a 20 or 25-year repayment term will still be repaying their own student loans when their children enroll in college. They are less ly to have saved for their children’s college education and will be less willing to borrow to help them pay for school.

Once you choose an income-driven repayment plan, you are locked into that repayment plan.

 Repayment plan lock happens because the loan payments will jump if you switch from an income-driven repayment plan to another repayment plan.

The loan payments will be the loan balance when you change repayment plans, not the original loan balance. This can make the new monthly loan payments unaffordable. 

As you are deciding what repayment plan is right for you, use our repayment calculators. We have a repayment calculator for each income-driven plan:


REPAYE: How it Works and Who it’s For

REPAYE: How it works and is it right for you?

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

If you’re struggling to keep up with your monthly student loan payments, the Revised Pay As You Earn plan (REPAYE) might help. This plan limits your payment each month your income.

how payments are calculated, REPAYE is best for:

  • Single borrowers (not married)
  • Borrowers with Federal Direct Loans
  • Borrowers with no graduate student debt

In this post:

How REPAYE works

REPAYE puts a cap on your monthly federal student loan payments at 10% of your discretionary income. This number is your adjusted gross income (AGI), family size, and total student loan balance.

Under this plan, if you haven’t paid off your loans after 20 or 25 years, your remaining balance can be forgiven. Because your monthly payment is your income, you could also pay off your debt a bit earlier.

If you’re married, your spouse’s income and student loans are considered when calculating your discretionary income. That can make your payment a lot higher than it is if you’re single. REPAYE can also lead to a situation where your payments are less than your monthly interest, which may lead to a growing loan balance instead of a shrinking one.

How REPAYE compares to other income-driven plans

If you’re interested in income-driven repayment and REPAYE doesn’t look a great choice, you can also consider another IDR plan Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), or Paye As You Earn (PAYE).

Repayment lengthNo more than 20 or 25 yearsNo more than 25 yearsNo more than 25 yearsNo more than 20 years
Payment amounts10% of discretionary income15% of discretionary income20% of discretionary income10% of discretionary income
Who it’s best forBorrowers looking for a lower monthly paymentFederal Family Education Loan Program (FFELP) borrowersAvailable to Parent PLUS Loan borrowersBorrowers with graduate student loans
To qualifyMust have Federal Direct LoansFFEL Program and Direct LoansMust have Federal Direct LoansDirect Loan borrowers since Oct. 1, 2007

When REPAYE might make sense for you

REPAYE is the best repayment plan for many student loan borrowers. It has wide qualification requirements, gives you the lowest payment, and results in forgiveness for the remainder of your balance after 20 years if you only have undergraduate loans.

REPAYE could make sense in these scenarios:

  • You’re single and have a low income and high monthly payments
  • You’re married and both you and your spouse have large student loans
  • You have student loans that don’t qualify for other income-driven repayment plans due to the origination or disbursement date
  • You have any type of Federal Direct Loan and want the lowest monthly payment possible
  • You’re willing to pay for your loans over a longer period of time to get a lower monthly payment

How to apply for REPAYE

Applying for REPAYE is easy. The best way to apply for most people is online at the website.

Here’s how to apply for REPAYE apply online:

  1. Go to the IDR plan application page
  2. Scroll down to the section for new applicants or returning applicants
  3. Click the button to log in and start your application
  4. Log in with your FSA ID and password (the same login you used when completing the FAFSA)
  5. Enter your personal information including details on your family size, employment, and marital status
  6. Connect your application to your IRS tax return to import your adjusted gross income (AGI) and other required financial details from your taxes
  7. Select the REPAYE option if eligible
  8. Enter your personal contact information
  9. Review everything for accuracy, sign, and submit your application

You can also get a PDF version of the paper application to mail in if you prefer.

What you can do if you don’t qualify for REPAYE

Some borrowers don’t qualify for REPAYE. If you don’t qualify and want an income-driven repayment plan, start the application process the same as you would for REPAYE. When you get to the end of the financial section, you will be presented with other options your loans and income.

If you have good credit, you might be able to save money by refinancing your student loans to get a lower interest rate. Those loans don’t end with forgiveness after 20 or 25 years, so do the math and weigh out the pros and cons to decide what makes the most sense for you.

Home » All » Student Loan Refinancing » REPAYE: How it Works and Who it’s For


PAYE Vs. REPAYE: Which Student Loan Payment Plan Is Right For You?

REPAYE: How it works and is it right for you?

Editorial Note: Forbes may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

If you have federal student loans and can’t afford your current monthly payments, enrolling in an income-driven repayment (IDR) plan can give you some relief. By basing your monthly payments on your discretionary income and extending your repayment term, IDR plans can reduce your payments. But which IDR plan is best for you?

Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) are two of the four available IDR plans. They differ in how much you could potentially pay—and for how long—as well as the types of student loans eligible. Here’s what you need to know about these two repayment options.

What Is Pay As You Earn (PAYE)?

PAYE was introduced in 2012 by the Obama administration as an alternative to the existing income-based repayment plan.

As of 2020, PAYE is the third-most popular IDR plan with 1.48 million borrowers enrolled and $108.5 billion in outstanding loans.

Under PAYE, the repayment term is set at 20 years for both graduate and undergraduate students. If you enroll in this plan, the loan servicer sets your monthly payment at 10% of your discretionary income, but your payment will never exceed what it would be under a standard repayment plan with a 10-year term.

Not all federal loan borrowers are eligible for PAYE. To qualify for PAYE, you must be a new loan borrower—meaning you don’t have an outstanding loan balance on a direct loan or Federal Family Education Loan (FFEL) on or after Oct. 1, 2007, and you received a disbursement of a direct loan on or after Oct. 1, 2011.

PAYE Interest Subsidy

If you’re enrolled in PAYE and your monthly payment doesn’t cover all of the interest that is due, the government will pay for the remaining interest on your subsidized loans for the first three years of repayment under PAYE. If you have unsubsidized loans, you’re responsible for all interest charges.

What Is Revised Pay As You Earn (REPAYE)?

Launched in 2015, REPAYE is the newest and most widely available of the four IDR plans. REPAYE is the most popular IDR option. As of 2020, 3.2 million borrowers are enrolled in REPAYE with $189.4 billion of student loans in repayment.

Available to all federal loan borrowers, REPAYE limits your monthly payment to 10% of your discretionary income, but there is no payment cap, meaning your payments eventually could be higher than it would be on the standard plan. If all of your loans were for undergraduate study, your repayment term is 20 years. If any of your loans were for graduate or professional school, your repayment term is extended to 25 years.

REPAYE Interest Subsidy

With REPAYE, if your monthly payment isn’t enough to cover the cost of interest that accrues, the government will pay all of the remaining interest that is due on your subsidized loans for up to three years.

After the three-year period expires, the government will pay half of the remaining interest on your subsidized loans. With unsubsidized loans, the government will always pay for half of the interest that is due.

PAYE Vs. REPAYE: Key Differences

  • Repayment term: Under PAYE, the repayment term is always 20 years. With REPAYE, your repayment term is determined by your education level. Your loan term is 20 years if all of your loans were for undergraduate study and 25 years if any of your loans were for graduate school.
  • Payment cap: With PAYE, your monthly payment will never exceed the payment you’d make under a standard repayment plan. By contrast, REPAYE doesn’t have a payment cap.
    Eligible loans: All federal direct loans, regardless of when you first took them out, are eligible for REPAYE.

    PAYE is more limited; it’s only available to new direct loan borrowers.

  • Interest subsidy: How interest is handled depends on your repayment plan. With REPAYE, the government covers half of the interest that is due on unsubsidized loans.

    Under PAYE, you’re solely responsible for all interest charges if you have unsubsidized loans.

  • Marital status: Your loan servicer will use your spouse’s information when calculating your monthly payment for REPAYE, even if you file separate tax returns.

    PAYE works differently; if you file separate tax returns, it only considers your income when determining your payments.

REPAYE Vs. PAYE: Similarities

  • Loan forgiveness. Both PAYE and REPAYE are qualifying repayment plans if you’re pursuing Public Service Loan Forgiveness or if you have a remaining balance after completing your repayment term
  • Discretionary income.

    Your monthly payment under PAYE and REPAYE is set at 10% of your discretionary income.

    For both repayment plans, your discretionary income is the difference between your adjusted gross income and 150% of the federal poverty level for your family size and location

Income-Driven Repayment (IDR) Alternatives

If neither PAYE nor REPAYE is right for you, there are other repayment options for federal direct loan borrowers, including:

  • Income-based repayment (IBR). Depending on when you first took out your loans, your payments will be either 10% or 15% of your discretionary income under IBR, and your repayment term will be 20 or 25 years
  • Income-contingent repayment (ICR). The only IDR plan available to parent loan borrowers, ICR sets your payment at 20% of your discretionary income and has a repayment term of 25 years

If you don’t have direct loans or are ineligible for an IDR plan, consider the following federal repayment alternatives:

  • Extended repayment. If you have at least $30,000 in direct loans, you can qualify for extended repayment. With this option, your repayment term is extended to 25 years, and your payments may be fixed or graduated.
  • Graduated repayment. Available to all federal loan borrowers, your loans are paid off within 10 years with graduated repayment (or up to 30 years for consolidated loans). Your payments start low and increase every two years, even if your income doesn’t change.
  • Income-sensitive repayment. If you have FFEL Loans, you can qualify for an income-sensitive repayment plan. With this option, your repayment term is at least 15 years and your monthly payment is your annual income.
  • Direct consolidation loans. By consolidating your loans, you can extend your repayment term to 30 years, reducing your monthly payment.

How to Choose the Right Payment Plan for You

If you’re not sure whether PAYE or REPAYE is best for you, there is help available.

You can use the Federal Student Aid Loan Simulator to enter your loan information and see what your monthly payments would be under each of the available IDR plans.

It will tell you what plans you’re eligible for, how much you’ll pay over the loan repayment term and how much will be forgiven if you qualify for loan discharge.

By using the Loan Simulator, you can see which plan would give you the lowest monthly payment so you can make an informed decision when enrolling. On the Income-Driven Repayment Plan Request form, you can also choose the option, “I want the income-driven repayment plan with the lowest monthly payment” to be automatically enrolled in the cheapest plan.

What about Student Loan Refinancing?

While IDR plans PAYE and REPAYE can reduce your monthly payments, you’ll still have to make payments for decades. With the longer loan term, you may pay more in interest charges. And if you have private student loans, you’re ineligible for IDR plans.

Another way to manage your education debt is student loan refinancing. When you refinance your loans, you combine multiple loans into one easy-to-manage loan. You can qualify for new loan terms, including a lower interest rate and monthly payment, helping you save money over time. This option is best for borrowers who have stable incomes and good-to-excellent credit scores.

If you’re considering refinancing, make sure you get quotes from multiple lenders so you can find the lowest interest rate. Check out our picks for the best refinancing lenders.


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