What Is the REPAYE Plan for Student Loans?

The Revised Pay As You Earn (REPAYE) plan was a federal student loan repayment option designed to help borrowers manage their monthly payments. This plan aimed to make student loan obligations more affordable by basing payment amounts on a borrower’s income and family size. It stood as one of several income-driven repayment (IDR) plans offered by the U.S. Department of Education.

In 2023, the REPAYE plan was replaced by the Saving on a Valuable Education (SAVE) Plan, and borrowers previously on REPAYE were automatically transitioned to the SAVE Plan. Despite this transition, understanding the original structure and benefits of REPAYE provides valuable context for federal student loan repayment options. The principles behind REPAYE, such as income-based payments and potential forgiveness, continue to be central to federal student loan policy.

Eligibility and Payment Calculation

To qualify for the REPAYE plan, borrowers generally needed to have eligible federal student loans. These included Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate or professional students, and Direct Consolidation Loans. Certain other federal loans, such as Federal Family Education Loan (FFEL) Program loans and Federal Perkins Loans, could become eligible if consolidated into a Direct Consolidation Loan. However, Parent PLUS Loans, and Direct Consolidation Loans that repaid Parent PLUS Loans, were not eligible for REPAYE. Private student loans never qualified for REPAYE or any other federal IDR plan.

There was no specific income cutoff for eligibility. However, the plan was most beneficial for those with a high debt-to-income ratio, as it adjusted payments based on financial capacity. The core of the REPAYE plan involved calculating monthly payments based on a borrower’s discretionary income. Specifically, discretionary income under REPAYE was defined as the difference between a borrower’s adjusted gross income (AGI) and 150% of the poverty guideline for their family size and state of residence.

Once discretionary income was calculated, the monthly payment amount was generally set at 10% of that figure. For instance, if a borrower’s discretionary income was $1,000, their monthly REPAYE payment would be $100. A significant feature of this calculation was the possibility of a $0 monthly payment if a borrower’s income was sufficiently low, resulting in zero or negative discretionary income. This could occur if their AGI was at or below 150% of the poverty guideline. The payment amount was subject to annual adjustments, requiring borrowers to update their income and family size information. Changes in income or family size could lead to increases or decreases in the calculated monthly payment.

Key Plan Features

REPAYE included an interest subsidy. If a borrower’s monthly REPAYE payment did not cover the full amount of interest accruing on their loans, the government would pay a portion of the remaining interest. For Direct Subsidized Loans, the government paid 100% of the remaining interest for the first three years a borrower was in REPAYE. After this initial three-year period, and for all Direct Unsubsidized Loans from the outset, the government paid 50% of the remaining interest. This subsidy helped prevent loan balances from growing excessively due to unpaid interest, even when monthly payments were low.

Any remaining loan balance was forgiven after a specified period of qualifying payments. For borrowers whose loans were solely for undergraduate study, forgiveness occurred after 20 years of payments. If a borrower had any graduate school loans, the forgiveness period extended to 25 years. The forgiven amount might be considered taxable income by the Internal Revenue Service (IRS) under current rules, unless the forgiveness qualified under specific programs like Public Service Loan Forgiveness.

Unlike some other income-driven repayment plans, REPAYE payments were capped at the amount a borrower would pay under the standard 10-year repayment plan. This cap ensured that even if a borrower’s income significantly increased, their monthly payments would not exceed what they would have paid on a traditional 10-year repayment schedule.

Enrolling in REPAYE

Borrowers could apply for REPAYE online via StudentAid.gov. Alternatively, a paper application could be completed and submitted directly to the borrower’s student loan servicer. The online application often provided consent for the Department of Education to access federal tax information directly from the IRS, which could expedite processing.

The most common method for income verification was to allow access to federal tax returns through the IRS Data Retrieval Tool. If a recent tax return was not available or did not accurately reflect current income, borrowers could submit alternative income documentation, such as recent pay stubs. It was also necessary to provide personal information, including family size and marital status, as these factors influenced payment calculations.

A fundamental requirement for maintaining enrollment in REPAYE was annual recertification. This process involved updating income and family size information with the loan servicer each year. Timely recertification was crucial; failing to recertify by the deadline could result in a change in repayment plan or the capitalization of unpaid interest. Notifications for recertification were typically sent out in advance.