Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) are federal income-driven repayment schemes that prolong your student loan term, require payments of 10% of your discretionary income, and forgive any residual amount after the payback period.
In general, PAYE is a better option for married borrowers with two incomes. REPAYE is often preferable for single borrowers and those who are not eligible for PAYE.
However, understanding the subtle distinctions between PAYE and REPAYE might be confusing:
PAYE vs. REPAYE PAYE
REPAYE
Requirements
There must be some degree of financial difficulty.
Must have obtained a federal loan on or after October 1, 2007, with no outstanding federal debts at the time. Also, a loan payout or consolidation must have occurred on or after October 1, 2011.
Anyone with a valid federal loan is eligible.
Payment amount:
10% of discretionary income, but never more than you would pay under the normal 10-year plan.
10% of discretionary income, with no limits. Payments may be more than they would be under the normal plan.
Does your spouse’s income count?
No, if you do your taxes individually.
Yes, even if you submit your taxes individually.
Repayment Period
20 years if you solely have undergraduate debts.
25 years if you have any graduate school debts.
Interest subsidies
The government covers 100% of outstanding interest on subsidized loans throughout the first three years of repayment.
The government covers 100% of outstanding interest on subsidized loans throughout the first three years of repayment.
It also pays 50% of any unpaid interest on subsidized loans beyond the first three years, as well as on unsubsidized loans throughout the term.
Capitalization limit
If your income becomes too high to qualify for PAYE, or if you fail to recertify your income on an annual basis, the amount of unpaid interest that can be capitalized is restricted to 10% of your loan total at the time you entered the plan.
There is no restriction on the amount that can be capitalized.
People with significant debt and great earning potential, such as dentists or physicians, may choose to consider PAYE’s monthly payment ceiling and REPAYE’s superior interest subsidies.
When deciding between PAYE and REPAYE, you’ll need to do the arithmetic to see which plan benefits you more, but here are some tips to help you make your selection.
1. Make sure IDR is suitable for you.
Private student loans do not qualify for any of the four income-driven repayment (IDR) programs, including PAYE and REPAYE.
There are two primary reasons to use PAYE or REPAYE for federal student loan repayment:
You cannot afford payments on the normal 10-year payback plan.
You’re looking for public service loan forgiveness.
In any case, you want to have the lowest feasible monthly payment, so an income-driven repayment plan makes sense.
If you are not seeking PSLF but can afford to make payments under the usual repayment plan, you should. Sticking to the normal plan will save you money on interest and help you pay off your debt faster. If you have decent credit, you may refinance your student loans to receive a cheaper interest rate and save money.
It’s also quite OK to temporarily switch to income-driven repayment. Doctors, for example, may prefer to pay on PAYE or REPAYE during residency then refinance once they become an attending.
2. Check if you qualify for PAYE.
To be eligible for PAYE, you must fulfill the following requirements:
Have obtained a federal loan on or after October 1, 2007, but have no outstanding federal loans at the time.
Have had a loan disbursed on or after October 1, 2011, or consolidated on or after that date.
Have a partial financial hardship, which means your PAYE payment will be smaller than it would be under the usual repayment plan.
The PAYE income eligibility condition basically implies that you only qualify if you would profit from the plan by receiving a reduced payment. PAYE payments will never be greater than those on the basic repayment plan.
If you do not meet PAYE’s standards, your choice is simple: REPAYE.
REPAYE is available to all federal loan borrowers, regardless of income or loan origination date. However, if your salary is high enough, your REPAYE payment may be more than the usual repayment plan.
3. Run the numbers.
Use the Loan Simulator tool from Federal Student Aid to compare monthly payments for PAYE and REPAYE, as well as any other federal student loan repayment options. The tool also displays the overall interest expenses and loan forgiveness prospects for each plan. To obtain the most accurate results, include all of the following data:
Types, amounts, and interest rates for your student loans and those of your spouse.
Your tax filing status, household size, and state of residence.
Your and your spouse’s adjusted gross incomes.
Compare the monthly payment amounts for each repayment plan and select the one that has the lowest monthly payment.
If a married borrower files taxes separately, their monthly REPAYE payments will be greater. That’s because REPAYE payments are always based on a couple’s joint income, whereas PAYE only considers your income if you file taxes separately.
Because of this flexibility, PAYE is most likely a preferable option if you are married or plan to marry in the future. If you’re single and expect your salary to rise, REPAYE is usually a better option. You’ll pay less interest on REPAYE thanks to the plan’s increased interest subsidy.
Under both PAYE and REPAYE, the government subsidizes all unpaid interest on subsidized loans for the first three years of repayment. In other words, those loans will not accumulate interest even if your payment is insufficient to meet the accrued interest.
REPAYE goes a step further, paying 50% of unpaid interest on subsidized loans after the first three years of repayment and on unsubsidized loans at all times.
4. Keep these things in mind.
Before you make a final selection between PAYE and REPAYE, make sure you understand these details:
Consequences of switching repayment plans: Once you’ve chosen a repayment plan, don’t switch. When you abandon an income-driven repayment plan, any unpaid interest is capitalized, raising the total interest you pay over time.
Impact of losing PAYE eligibility: If your income rises to the amount where you are no longer eligible to make PAYE contributions, you will stay on the plan, but your payment will be equivalent to what you would pay on the normal plan. Unpaid interest will be capitalized, however the amount cannot exceed 10% of your initial loan total when you entered PAYE.
Tax status of forgiven student loans: If you’re anticipated to get income-driven payback forgiveness (as shown by the payback Estimator), bear in mind that the forgiven amount will be taxed as income if forgiven after December 31, 2025. In such situation, picking the plan with the lowest monthly payment will maximize the amount forgiven while increasing your future tax burden. If you’re seeking PSLF, don’t worry; debts forgiven through PSLF are not taxed as income.
Differences in repayment timelines: If you have any graduate school loans, your REPAYE payback period is 25 years. Otherwise, the payback time for REPAYE is twenty years. PAYE loans have a 20-year payback duration, regardless of loan form.
