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Of all the hardship-based plans, Pay as You Earn (PAYE) was the best for achieving low monthly payments. In most cases, it caps payments at around 10% of the borrower’s adjusted gross income; in some cases, when a borrower faces extreme financial hardship, it drops the payments to $0. The only problem was that not everyone could qualify for the program.
In 2015, President Obama continued efforts to expand student debt relief with Revised Pay as You Earn (REPAYE). The program offers many of the same benefits of PAYE but makes them accessible to more borrowers. However, REPAYE isn’t the same as its cousin; in fact, the changes are significant. Here is what you need to know.
If you still have balances left after 20 or 25 years, they are forgiven without penalties as long as you made all the payments.
The main catch comes with any significant increases in your income. If your income is below the federal poverty line in your state for your family size, your payments drop to zero. That’s good.
When your income is more than 150% of the federal poverty line. In this case, your payments can be higher than what you’d pay on a standard repayment plan. Instead of saving money, you end up spending more. This only happens when you reach a point at which the federal government considers a stable income.
Note that there is no penalty for switching repayment plans. If you get into REPAYE and then your income increases, you can change to standard or graduated repayment. Don’t assume that Revised Pay as You Earn with always give you the lowest payments possible.
Revised Pay as You Earn requires annual income certification. If you don’t recertify on time, they kick you out of the program and switch you to an alternative program. This is equivalent to a standard plan. The plan sets your payments at an amount necessary to repay your debt in full within 10 years of starting alternative repayment OR the end of your original REPAYE, whichever comes first. That could lead to a big hike in your payment and puts you at risk of default.
You might trust that your loan servicer will let you know when you need to recertify. However, federal loan servicers aren’t exactly known to provide the best customer service. It’s entirely possible that your recertification date can pass without your prior knowledge.
Despite those two catches, REPAYE is a good federal loan repayment plan, especially if you face income challenges. Entry level income these days is a drop in the bucket compared to the debt that most students graduate with, so an affordable plan with caveats is better than no plan at all. (Note that if you don’t choose a plan before your repayment period starts, they automatically enroll you in the standard plan.)
If you don’t have enough income to repay your loans on a standard plan, REPAYE can provide a significant benefit. Make sure you stay on top of recertification or find a middle man – student loan debt relief companies basically act as a go-between for you and the servicer. If you hire one, they’re more likely to help you stay on track and address challenges as they arise.
Article last modified on July 24, 2019. Published by Debt.com, LLC