REPAYE: what it means for you

In June of 2014 President Obama put through an executive order that would allow those who qualify for the 15% version (IBR) of the income driven plans to now qualify for the 10% Pay As You Earn program (PAYE) plan regardless of when you took out your loans.

In short, this means that about 5 million borrowers who are presently in the 15% IBR program will have the opportunity to lower their payment by approximately 33% under the 10% version of the plan.

Up until now, however, the details of the plan had not been revealed and I have been advising my clients to wait for the details to be released before they get their hopes up for a lower payment. These new changes are called the REPAYE plan.

The REPAYE plan will lower the way your payment is determined based on 10% of your discretionary income. The plan is similar to the PAYE plan but not completely the same.

Here are some of the important aspects of the plan which will highlight these differences:

1. Probably the most notable difference between PAYE and REPAYE is that you must include your spouse’s income when submitting your income to determine your qualifying monthly payment regardless of how you file your taxes. With IBR and PAYE, you were able to file your taxes married separately to avoid including your spouse’s income and therefore receiving a lower payment.

2. Both PAYE and REPAYE determine your payment based on 10% of your discretionary income. However, borrowers who have graduate loans in the REPAYE program won’t get the forgiveness until 25 years, making this aspect of the program a hybrid of IBR and PAYE.

3. There is no cap on the monthly payment in the REPAYE plan. With both the IBR and PAYE programs, your payment can never get higher than the 10 year standard payment on the loan. As a result, your payment is capped at this amount no matter how much you make, you payment can never exceed what your 10 year standard loan payment would be.

This is not so with the REPAYE program. Your payment will continue to go up past the 10 year program as your income increases. This is especially of interest to physicians who benefit from very low payments in residency, by then never have to pay more than the 10 year standard under IBR and PAYE even though their income increases dramatically once they become an attending or specialist in their field.

The new REPAYE program eliminates this huge benefit for physicians and the like. The good news is that they can stay in their existing program as they choose. The 10% REPAYE program is only targeted for those presently in the higher 15% IBR program looking for a lower payment. As a result, in many cases, it will benefit many borrowers to remain in.

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And that sums up the most conspicuous aspects of the new REPAYE plan. If you have any questions about how this national change applies to your student loan portfolio, please feel free to send your questions my way via a free consultation with me or email me at (info (at) student-loan-consultant (dot) com.

I look forward to being of help!

Best always,

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