Student Debt Resource

6: Revised Pay as You Earn (REPAYE) Plan

/ Student Debt E-book

Established by the Department of Education on October 27, 2015, the Revised Pay as You Earn (REPAYE) plan is a new income-driven repayment plan. The Department of Education made the plan available to student loan borrowers on December 17, 2015. 

The REPAYE plan caps your monthly payment amount at 10 percent of your monthly income. If you are enrolled in the REPAYE plan, any outstanding balance is cancelled after 20 years of qualifying repayment if all loans were received for undergraduate study. For those with any graduate or professional study loans, any outstanding balance will be cancelled only after 25 years of qualifying repayment. 

Qualifying for the REPAYE Plan 

Like the ICR plan, the only qualification for entering into the REPAYE plan is having eligible loans. There is no requirement for when the loans were taken out and no requirement that borrowers have a partial financial hardship.  

Eligible loans include: 

Direct Subsidized  Direct Unsubsidized  Direct Grad PLUS  Direct Consolidation  FFEL Loans If converted into a Direct Consolidation 

Loans that are not eligible include:  

  • Loans from state or private lenders are never eligible for repayment under the REPAYE (or any IDR) plan. Avoid borrowing private loans if you want to preserve the ability to enroll all your loans in REPAYE. 
  • Parent PLUS Loans are not eligible for repayment under the REPAYE plan. Federal consolidation loans that repaid Parent PLUS Loans are also ineligible. 
  • Federal Perkins Loans are only eligible when part of a Federal Direct Consolidation Loan. However, Perkins Loans include their own cancellation provisions. Before consolidating a Perkins Loan, you should consult with the school from which you obtained the loan to find out whether you can benefit from cancellation. These provisions will be lost if Perkins Loans are consolidated. 
  • Federal loans in default cannot be repaid under the REPAYE plan. 
Paying under the REPAYE Plan 

Under the REPAYE plan, payments are always 10 percent of your discretionary income, regardless of payment amount. This differs from the PAYE and IBR plans, where payments are capped at the amount you would have paid in a 10-year Standard Repayment Plan at the time you entered repayment. Borrowers with higher incomes may want to consult the loan simulator to ensure that remaining in the REPAYE plan would not result in a payment amount above what one may otherwise be able to pay under any of the other repayment plans.  

Like the other IDR plans, the REPAYE plan also offers loan cancellation provisions. If you only have eligible loans from undergraduate studies, all unpaid loan principal and interest is forgiven after payments have been made for twenty years. However, if you have eligible loans for graduate or professional study, the cancellation period is extended from twenty years to twenty-five years.  

Reminder: The amount cancelled is reported to the IRS via a 1099-c, or “cancelled debt” form. This could result in your assuming a tax liability in the year the cancellation occurs.  

How Judy Justice Could Benefit from the REPAYE Plan 

Judy Justice owes $165,000 in Direct Plus loans. Her loans have a 7.9 percent interest rate. She has a spouse, Tommy Tort, and two children, Susie and Jack. This means Judy has a family size of four.  

Judy makes $75,000 a year, while her husband Jack remains at home with the children. Judy and Jack reside in Alabama.  

Using the loan simulator, Judy gains the following benefits from the REPAYE plan:  

  • Under the REPAYE plan, Judy pays $318 a month. Assuming a five percent average increase in income annually, Judy can expect to pay $233,755 over the life of her loan. However, after making payments for 25 years, Judy can have $170,476 in loans cancelled.  
  • Judy would pay $1,812 under the Standard Repayment Plan (10 year), $1,058 under the Graduated Plan (with payments eventually rising to over $3,000), and $988-$1,543 under the Extended Repayment Plan (depending on whether or not Judy used the fixed or graduated payment option). Overall, Judy saves between $700 and $1,500 on her monthly payments by using the REPAYE plan, versus one of the balance based plans.  
  • While Judy will pay longer under the REPAYE plan than she would under the Standard Repayment Plan, she will pay a little more over the life of the loan while having much lower payments. Under the Standard Repayment Plan, Judy pays $217,000 over the life of the loan, while she pays $233,000 over the life of the loan under the REPAYE plan. The gains become even more prominent when you compare the total cost of the loan under the REPAYE plan to the total cost of the loan under the Extended or Graduated Payment plans. Under the Extended Repayment Plan, Judy will pay between $345,000 and $370,000 over the life of loan while making payments just as long as she has to make them under the REPAYE plan. Similarly, under the Graduated Plan, Judy pays $236,000 over the life of the loan. This is only $3,000 more than Judy pays over the life of the loan under the REPAYE plan. However, Judy would have to pay the $236,000 under the Graduated Repayment Plan in 120 months versus 300 months under the REPAYE plan. 
  •  However, it is important to compare REPAYE to PAYE. Her initial payments start at the same $318 a month. But because REPAYE is not capped at the amount she would have paid in a 10-year Standard Repayment Plan, her estimated payments grow to $1,473 in REPAYE versus $1,098 in PAYE. Also, because she has PLUS Loans, Judy would receive cancellation five years later in REPAYE. As a result, she would pay far less overall in PAYE ($154,842) versus REPAYE ($233,755)