What Was the REPAYE Student Loan Repayment Plan?

The Revised Pay As You Earn (REPAYE) Plan was an income-driven repayment (IDR) option for federal student loans. It helped borrowers manage loan payments by basing them on a percentage of their discretionary income, rather than a fixed amount. This made monthly payments more affordable and provided a pathway to potential loan forgiveness after a specified period of repayment.

Eligibility Requirements

Most federal student loans were eligible for the REPAYE Plan. This included Direct Loans (Subsidized, Unsubsidized, and PLUS loans made to students). Federal Family Education Loan (FFEL) Program loans (Stafford, PLUS, and Consolidation Loans) also became eligible if consolidated into a Direct Consolidation Loan.

Private education loans and Federal Parent PLUS Loans not included in a Direct Consolidation Loan were not eligible. Loans needed to be in good standing (not in default) to qualify. There was no specific income threshold to qualify; income determined the monthly payment amount.

For married borrowers, REPAYE always considered both the borrower’s and their spouse’s income to calculate the monthly payment, regardless of tax filing status. This could significantly impact the calculated monthly payment.

Calculating Monthly Payments

Monthly payments under REPAYE were generally 10% of a borrower’s discretionary income, ensuring payments remained manageable. Discretionary income was the difference between a borrower’s Adjusted Gross Income (AGI) and 150% of the poverty guideline for their family size and state of residence.

A borrower’s AGI was typically derived from their most recent federal income tax return. If income changed significantly since their last tax filing, alternative documentation like pay stubs could be provided. The poverty guideline, published annually by the Department of Health and Human Services, varied based on family size and state of residence, with separate guidelines for Alaska and Hawaii.

For example, a larger family size resulted in a higher poverty guideline, increasing the amount subtracted from AGI and potentially leading to a lower discretionary income and monthly payment. Monthly payments would never exceed the amount a borrower would pay under the 10-year Standard Repayment Plan.

Key Features of REPAYE

The REPAYE Plan offered features designed to provide financial relief, including an interest subsidy mechanism. If a borrower’s monthly payment was less than the interest that accrued on their loans, the government paid a portion of that unpaid interest.

For the first three years on REPAYE, the government paid 100% of any unpaid interest on Direct Subsidized Loans. After this period, and for all Direct Unsubsidized Loans, the government covered 50% of any remaining accrued interest not covered by the borrower’s payment. This subsidy helped prevent loan balances from growing.

REPAYE also provided loan forgiveness. After a specified period of qualifying payments, any remaining loan balance would be forgiven. The repayment period varied based on the type of loans held.

For undergraduate-only loans, forgiveness occurred after 20 years of qualifying payments. If a borrower had any graduate school loans, or if their consolidated loan included graduate school debt, the forgiveness period extended to 25 years. Any loan amount forgiven under REPAYE may be considered taxable income by the Internal Revenue Service (IRS) in the year of forgiveness.

Applying for the REPAYE Plan

Applying for the REPAYE Plan was a straightforward process, typically initiated through the Federal Student Aid website or directly with a borrower’s student loan servicer. The application required borrowers to select the REPAYE Plan from the available income-driven repayment options. This choice indicated their preference for a payment structure aligned with their income.

During the application, borrowers provided personal information, income details, and family size. These details were necessary for the loan servicer to calculate the monthly payment amount under REPAYE guidelines. Income verification generally required submitting documentation, such as the most recent federal income tax return.

If a recent tax return did not accurately reflect current income, or if a borrower had not filed taxes, alternative documentation could be provided. This might include recent pay stubs, a letter from an employer, or other verifiable proof of income. After submitting the application and all required documentation, borrowers received confirmation of receipt, and their loan servicer processed the request, communicating the new payment amount and effective date.

Managing Your REPAYE Plan Annually

Maintaining enrollment in the REPAYE Plan required borrowers to complete an annual income and family size recertification. This yearly process ensured that monthly payments continued to accurately reflect a borrower’s current financial situation. Recertification was typically due 12 months after the previous approval date, with notifications from their loan servicer.

The recertification process involved submitting updated income and family size information, similar to the initial application. Borrowers could complete this online through the Federal Student Aid website or by submitting forms directly to their loan servicer via mail.

Required documentation for recertification commonly included the most recent federal income tax return or alternative income verification, such as pay stubs, if tax information was not current. Timely recertification was important to prevent negative consequences.

If a borrower failed to recertify by the deadline, any unpaid interest that had accrued on their loans could be capitalized (added to the principal balance). The monthly payment amount could also adjust to the amount they would pay under the 10-year Standard Repayment Plan, potentially resulting in a significant increase.