Editor's Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked due to two court decisions; the Supreme Court has agreed to hear arguments for both appeals in February. In the meantime, the Biden administration extended the federal student loan payment pause into 2023. The US Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
Struggling to make your student loan payments? Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) may ease the burden. The choice boils down to your degree of financial hardship, desired repayment term, and income trajectory.
Both adjust your monthly loan payments based on your income and family size.
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PAYE vs REPAYE: An Overview
If your federal student loan payments under the standard 10-year repayment plan are high compared with your income, one of the four income-based repayment plans might be an option.
The PAYE and REPAYE plans generally enable eligible federal student loan borrowers to cap their monthly student loan payments at 10% of their monthly discretionary income. (Discretionary income is the difference between annual income and 150% of the poverty guideline for family size and state of residence.)
One main difference: While borrowers need to apply for both programs, the PAYE plan typically requires proof of financial hardship.
The pay as you earn repayment plans are available for Direct Subsidized and Unsubsidized Loans; Grad PLUS loans; Direct Consolidation Loans that did not repay any Parent PLUS loans; FFEL loans if consolidated; and consolidated federal Perkins Loans.
Key Differences Between PAYE and REPAYE
Both plans extend the length of your loan beyond the standard 10-year repayment plan. Both require you to “recertify” your income and family size each year. Both cap your monthly loan payment at 10% of your discretionary income.
Both consider the same federal student loans eligible.
Both plans are designed to forgive any loan balance after 20 or 25 years, although if you’re also working toward Public Service Loan Forgiveness, you may qualify for forgiveness of any remaining loan balance after 10 years of qualifying payments.
Recommended: Student Loan Forgiveness Programs
So what are the differences?
• Requires proof of financial hardship.
• Has a repayment period of 20 years.
• Counts a spouse’s income unless you’re married and file separately.
• You’re eligible if you took your first loan out on or after Oct. 1, 2007, and received at least one Direct Loan on or after Oct. 1, 2011.
• Has a repayment period of 20 years if all loans being repaid under the plan were for undergraduate study.
• Has a repayment term of 25 years if any loans being repaid under the plan were for graduate or professional study.
• Always considers a spouse’s income.
• Has no application restrictions based on when you took out your federal student loans.
Recommended: Types of Federal Student Loans
There are also differences in the interest subsidy.
What Is the Interest Subsidy?
If your payments under PAYE or REPAYE are too small to cover the interest your loan accrues each month, the government will help in the form of an interest subsidy.
Under both plans, the federal government covers surplus interest charges on subsidized loans for the first three years.
With REPAYE, though, after three years, the government will pay 50% of the accruing interest on subsidized loans. Eligible unsubsidized loans receive a 50% interest subsidy at all times if your payment is too small to cover the interest.
Interest will capitalize under both plans if you fail to recertify income and family size or you leave the plan, and in the case of PAYE if you no longer can demonstrate financial hardship.
However, in late October, the Biden-Harris Administration introduced new student-loan regulations that will affect income-driven repayment (IDR) plans. Effective July 1, 2023, interest will no longer capitalize when borrowers leave the PAYE or REPAYE programs, saving them money on compounding interest.
The administration is also developing a new IDR plan, which will suspend excess interest accrual during periods when monthly payments do not cover all accruing interest.
Answers to Common Questions
How do I apply for a repayment plan?
You only need to submit one application for any income-driven repayment plan and will need to supply financial information. It will take about 10 minutes. The federal Student Aid Office also will recommend a repayment plan based on your input.
I want to apply for PAYE. How is financial hardship defined?
A general rule of thumb: If your debt exceeds your income, you likely demonstrate hardship under PAYE.
More specifically, your loan servicer will compare your monthly payment under the standard plan and PAYE. If you’d pay more under the standard plan, you have a financial hardship.
What if I’m in PAYE and no longer demonstrate hardship?
Your loan payments will stop being based on your income, and unpaid interest will be added to your loan. (This interest capitalization will be suspended as of July 2023.)
What if I forget to recertify my income and family size for either plan?
Your loan payments will no longer be based on your income. They will revert to the amount you would pay under the 10-year standard repayment plan.
I’m married and have a moderate income, which I don’t expect to change much. What’s the better fit?
PAYE might fit best.
I’m single, I’ll probably earn much more in the coming years, and I can’t prove financial hardship. Which plan of the two might fit me better?
Does a Parent PLUS Loan qualify for either plan?
Earn $100! If you find a lower rate, we’ll match it and
give you an extra $100 when your loan is funded.‡ Guaranteed.
Income-Driven Repayment Alternatives
PAYE and REPAYE may lower your monthly student loan payments, and forgiveness of any balance after 20 or 25 years is a big perk. But these plans aren’t the only way to reduce the sting of loan payments.
You can also refinance your student loans — private and federal — with a private lender and potentially qualify for a lower interest rate.
Got graduate school or federal parent loan debt? Many borrowers refinance Grad PLUS Loans and Parent PLUS Loans, as those have historically offered less competitive rates.
The government Direct Consolidation Loan program combines federal student loans into a single federal loan, but the interest rate is the weighted average of the original loans’ rates rounded up to the nearest eighth of a percentage point, which means the borrower usually does not save any money. Lengthening the loan term can decrease the monthly payment, but that means you’ll spend more on total interest.
With PAYE or REPAYE, federal loan benefits and protections like deferment and public service-based loan forgiveness are in play and will not carry over with a refinanced private loan. But borrowers who qualify for a lower interest rate could see substantial savings over the life of the loan through refinancing.
Recommended: Student Loan Refinancing Calculator
PAYE and REPAYE tie federal student loan payments to income and family size for 20 to 25 years. They differ in small ways, and each has its merits, but borrowers might want to consider refinancing student loans if they can get a better rate. Rates have been at historic lows. See what you qualify for in just two minutes.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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