Starting today, all borrowers with federal Direct student loans have access to a new repayment plan with monthly payments limited to 10% of your discretionary income. You can enroll regardless of when you borrowed. If you’re having trouble affording your monthly payments – or just want the assurance of payments based on your income – check out the Revised Pay As You Earn (REPAYE) plan and see if it’s right for you.
REPAYE and other “income-driven” plans can help keep monthly payments manageable, but may not be the best fit for everyone. Depending on how your income changes over time, you may pay more in total than you would under some other repayment plans, such as the 10-year standard plan.
Here is some key information for borrowers considering REPAYE:
- How much will I pay each month? Your monthly payment will be 10% of your “discretionary income” (that’s your income minus 150% of the poverty level for your family size). If your income is very low, payments can be as little as $0 until your income rises. To see what your payment would be in REPAYE and other plans, you can use the U.S. Department of Education’s easy online Repayment Estimator.
- How long will I be making payments? Up to 20 years if you borrowed only for undergraduate education, or up to 25 years if you took out any federal loans for graduate school. If you reach the time limit and have not yet fully repaid the loan, the remaining balance will be forgiven (but under current IRS rules, it will be treated as taxable income). If you work full-time for the government or a nonprofit organization, you may be eligible to have your loans forgiven after 10 years of payments, tax-free. Find out more about Public Service Loan Forgiveness here.
- Which types of loans are eligible? REPAYE is available for all federal Direct student loans that are not in default. If you have other types of federal loans (such as FFEL* or Perkins Loans), you can consolidate them into a Direct Consolidation Loan, which would then be eligible for REPAYE. Click here and here for information about the pros and cons of consolidating. Neither Parent PLUS loans nor consolidation loans that include Parent PLUS loans are eligible for REPAYE.**
- How do I sign up? Apply online at StudentLoans.gov (look for the “Income-Driven Repayment Plan Request”), where you may be able to electronically transfer your tax information into the application form. Alternatively, you can request a paper application from your loan servicer. No matter how you apply, you can check a box asking for the plan with the lowest initial payment you qualify for. These plans are always available for free – you never have to pay a fee to enroll.
- What if I am already in an income-driven repayment plan? You can change federal loan repayment plans at any time. If you’re already in Income-Based Repayment (IBR) or Income-Contingent Repayment (ICR), switching into REPAYE may lower your monthly payments and shorten the total time you have to repay. However, if you switch plans, any unpaid interest will capitalize (i.e., be added to your loan principal), causing interest to accrue on a higher loan balance. Also, if you have to consolidate your FFEL loans to make them eligible for REPAYE, any IBR payments you made before consolidating will not count toward your maximum repayment period in REPAYE.
For a high-level view of how REPAYE compares to the four other income-driven plans, we created a summary chart. To estimate your monthly payments and eligibility for REPAYE and other plans, visit the Department of Education’s online Repayment Estimator. For more detail about how REPAYE is different from other income-driven plans, see the Department’s blog post. You can find out more about all the income-driven plans at the Department’s website and our website for borrowers, IBRinfo.org.
What is next for income-driven repayment? While REPAYE is good news for many borrowers, it is confusing to have five different income-driven plans for federal student loans. There is broad and bipartisan support for Congress to streamline them into one improved income-driven plan. REPAYE is a good starting point for developing that new plan, but there are still important ways to improve it, including limiting payments to 20 years for all borrowers, as we and thousands of others have urged, and eliminating the taxation of forgiven debt.
* Most federal loans issued before July 1, 2010 were made through the Federal Family Education Loan (FFEL) program. If you’re not sure which type of federal loans you have, log in and check your record on StudentAid.gov. If you don’t want to consolidate your FFEL loans into a Direct Consolidation Loan, you may be able to enroll in a different plan called Income-Based Repayment (IBR). However, your monthly payments may be higher and you may end up paying for a longer period of time than you would under REPAYE.
** The only income-driven plan available for Parent PLUS loans is the Income-Contingent Repayment (ICR) plan, and the Parent PLUS loan must first be consolidated into a Direct Consolidation Loan to become eligible for ICR. For more information about ICR, click here.