Jobi.ngHey there, fellow student! If you’re staring at your student loan balance and wondering how you’ll ever pay it off, you’re not alone. Thankfully, the U.S. Department of Education offers income-driven repayment plans designed to make monthly loan payments more manageable; they are called PAYE and REPAYE.
Two of the most popular plans are PAYE (Pay As You Earn) and REPAYE (Revised Pay As You Earn). Both calculate your monthly payment based on your income and family size, but they have key differences that could sway you one way or the other.
Let’s walk through the basics of each plan, compare their pros and cons, and help you decide which might be a better fit for your situation, all in just 7 steps.
1. Who’s Eligible? Getting Through the Fine Print
While PAYE and REPAYE are a breakthrough to most, not everyone is eligible for this student loan plan. Now let’s look at the eligibilities.
PAYE Eligibility
- When you borrowed. You must have taken out your first federal Direct Loan on or after October 1, 2007, and another loan after October 1, 2011.
- Partial financial hardship (PFH). Your standard 10-year repayment amount must be higher than what PAYE would charge you.
REPAYE Eligibility
Open to almost everyone. You only need to have eligible federal Direct Loans—there’s no “first-loan date” requirement or PFH test.
Bottom line: If you borrowed before fall 2007 or don’t meet PAYE’s PFH test, REPAYE might be your only income-driven option.
2. How Monthly Payments Are Calculated
Both plans base your payment on a percentage of your “discretionary income.” Discretionary income is the difference between your adjusted gross income (AGI) and 150% of the federal poverty guideline for your family size and state.
- PAYE: 10% of discretionary income.
- REPAYE: 10% for undergraduate loans, 15% for graduate or professional study loans.
Example: If your AGI is $40,000 and the poverty guideline for a two-person household is $19,720, then 150% of that is $29,580.
Discretionary income = $40,000 – $29,580 = $10,420
- Under PAYE: 10% × $10,420 = $1,042/year, or about $87/month.
- Under REPAYE (assuming undergrad debt): same $1,042/year → $87/month.
If you have graduate school debt, REPAYE would bump you to 15%, so about $130/month.
3. Payment Caps and Unpaid Interest
PAYE’s Safety Net
10-Year Standard Cap: Your monthly payment will never exceed what you would have paid under the standard 10-year repayment plan. Even if your income spikes, you’re protected.
REPAYE’s Unlimited Upside
No Cap: If your income jumps, your payment could exceed the standard 10-year amount. That’s great if you’re comfortable making larger payments, but risky if you want predictability.
Unpaid Interest Subsidy
One issue with income-driven plans is that low payments sometimes don’t cover accruing interest.
- PAYE: If your payment doesn’t cover the interest on subsidized loans, the government forgives the unpaid interest for up to three years. After that, interest accrues normally.
- REPAYE: The government forgives 50% of unpaid interest on both subsidized and unsubsidized loans forever—no three-year limit. That’s a huge win if your payments are super low.
4. Forgiveness Timelines
This is a timeline you can follow from Day 1 of repayment to your debt-free finish line.
- PAYE: 20 years of qualifying payments (240 months).
- REPAYE: 20 years if all loans are for undergraduate study; 25 years if you have any graduate or professional loans.
After that period, any remaining balance is forgiven, but watch out for taxes. The forgiven amount may be considered taxable income (unless Congress extends tax-free forgiveness).
5. Married Status & Filing Taxes
Both PAYE and REPAYE use your tax filing status to determine payments, but they handle spouse income differently. Let’s break it down for you to understand.
- PAYE: This can count individually or jointly. Let’s say you are married, but you are filing jointly with your spouse. Both your spouse’s incomes count. However, if you are married and filing separately, only your income counts.
- REPAYE: Counts both spouses’ incomes regardless of filing status. So even if you file separately, your spouse’s income will raise your payment.
If you’re married and your spouse earns a lot more than you, PAYE (with separate filing) can save you big bucks on monthly payments.
6. Which Plan Fits Your Goals?
While taking out a student loan, you should also consider the plan that’s the best fit for you at the moment.
| Factor | PAYE | REPAYE |
|---|---|---|
| Eligibility | More restrictive | Very broad |
| Payment percentage | 10% for all loans | 10% (undergrad) / 15% (grad) |
| Payment cap | 20 years (undergrad only) / 25 years (with grad) | No cap |
| Interest subsidy | Unpaid interest forgiven up to 3 years (subsid.) | 50% unpaid interest forgiven indefinitely |
| Forgiveness term | 20 years | 20 years (ugrad only) / 25 years (with grad) |
| Spouse income included? | Only if filing jointly | Always included |
When to Choose PAYE
Let’s just say you want to take out a student loan and want to go for a PAYE loan; below should be the conditions you need to choose PAYE.
- You borrowed recently (post-2007) and meet PAYE’s PFH test.
- You value a payment cap to limit your monthly bill if your income soars.
- You’re married and want to file separately to exclude your spouse’s income.
When to Choose REPAYE
The same also goes for REPAYE; you need to meet the following conditions below in order to choose REPAYE loans.
- You borrowed before PAYE’s cutoff or don’t qualify for PFH.
- You have both undergrad and grad loans and can handle higher payments if income rises.
- You prefer a generous interest subsidy on all loans.
7. A Quick Decision-Making Checklist
Before making any decision on taking any of the loans, either PAYE or REPAYE, you need to make sure all your checklists check out, just like the one below.
- Check eligibility: If you don’t qualify for PAYE, REPAYE is your go-to.
- Estimate payments: Use the Federal Loan Simulator (studentaid.gov/loan-simulator) to plug in your AGI, family size, and loan mix.
- Consider spouse income: Will you file taxes separately? If so, PAYE may be more forgiving.
- Plan for forgiveness: Are you in it for the long haul? REPAYE’s 25-year term for grad loans could mean a longer slog.
- Think interest subsidy: If you expect very low payments for years, REPAYE’s indefinite subsidy could save you thousands.
Final Thoughts
Deciding between PAYE and REPAYE comes down to your borrowing history, income outlook, marital status, and appetite for risk. Neither plan is universally “better”; it’s all about which features align with your goals.
However, if you want a cap on your monthly payment? Lean toward PAYE, but if you need broad eligibility and the best interest subsidy? REPAYE might win.
Whatever you choose, remember to rectify your income and family size every year to keep your payments on track. And if your financial situation changes drastically, you can switch plans or reapply (watch out for eligibility rules).
Managing student loans can feel daunting, but with income-driven plans like PAYE and REPAYE, you’ve got tools to help you stay on top of payments and maybe even shave years off your repayment timeline.
Now take a deep breath, grab a cup of coffee, and tackle that application; your future self will thank you!
Originally posted 2021-12-08 08:48:46.
