Between the end of COVID-19 relief, Biden’s Student Loan Forgiveness Initiative, and the IDR Account Adjustment, student loan repayment has seen a serious shake-up.
As we draw nearer to the likely end of the student loan payment pause, understanding Biden’s latest initiative, the REPAYE plan, could be an essential part of your repayment strategy. This modified Income Based Repayment (IBR) plan falls under the IDR umbrella, but enrollment and qualifications differ slightly from previous IDR plans.
Read on to learn about the updated REPAYE and what it might mean for your student loans.
What is REPAYE?
In January 2023, the Department of Education proposed changes to student loan income-driven repayment plans, making it more straightforward and affordable for federal borrowers to repay their loans.
Called REPAYE, or Revised Pay As You Earn Repayment Plan, this plan could significantly reduce monthly payments and shorten repayment timelines for some borrowers. It’s also meant to simplify repayment options for borrowers instead of having them parse through the four existing repayment plans.
How Is REPAYE Different From Other IDR?
The REPAYE proposal augments the already in-place IDR (Income-Driven Repayment) plan for federal student loan borrowers. Here’s how repayment would change for qualifying borrowers.
5% discretionary income payments for undergrads
Previously under IDR, monthly student loan payments for undergraduates were capped at 10% of a borrower’s discretionary income, with discretionary income defined as “any income above 150% of the poverty guideline amount for their state.”
Under the new REPAYE plan, monthly payments would be capped at 5% of a borrower’s monthly discretionary income for undergraduate loans and 10% for graduate loans. The discretionary income standard would also rise to 225%. That means the amount of a borrower’s income used to calculate monthly payments would be significantly reduced compared to the previous plan.
$0 monthly payments
Single borrowers who make less than $30,500 annually and households of four who make $62,400 annually would make $0 monthly payments towards their loans. If the borrower qualifies for the $0 monthly payments, the change would also mean no interest will accrue on their owed balance. What’s more, these $0 monthly payments would still count towards IDR or PSLF programs.
With regular payments, no interest accrual
Under old IDR plans, the borrower's monthly payments sometimes were less than the monthly interest building on the loan. That meant even if a borrower made their regular monthly payment, their balance would continue to grow.
Under modified REPAYE guidelines, interest won't accumulate on the loan if a borrower makes regular, on-time monthly payments.
Faster forgiveness
Under the current REPAYE plan, borrowers can have their loan balances forgiven after 20 years of regular monthly payments (25 years for graduate loans).
Under the newly proposed REPAYE guidelines, borrowers who take out loans of $12,000 or less would be eligible for forgiveness after 10 years of repayment. For every additional $1,000 borrowed, another year of repayment would be added for forgiveness.
For example, if someone borrowed $15,000, they would be eligible for forgiveness after 15 years of regular payments.
Additionally, REPAYE would loosen the guidelines around deferment and forgiveness. It would also allow borrowers to consolidate their loans without compromising their forgiveness plan.
Auto-enroll
Under the new guidelines, delinquent borrowers at least 75 behind on payment would be auto-enrolled in the program. That means they’d automatically be on a plan with the lowest monthly payment.
Who Can Benefit from REPAYE?
Both graduate and undergraduate federal loan borrowers qualify for the new REPAYE plan. However, parents enrolled in Parent PLUS loans do not qualify for REPAYE.
While Biden’s Student Loan Forgiveness Initiative has been challenged in court and largely placed on hold, these proposed changes to REPAYE would provide some much-needed relief for borrowers as the student loan payment freeze ends. Some may even consider the changes to REPAYE to be their own form of forgiveness.
That’s because for qualifying borrowers, it would reduce monthly payments and put borrowers in the past to full forgiveness faster. It also gives borrowers in default a chance to resume payments with little legwork on their end.
How Can You Enroll in the Modified REPAYE?
These changes to IDR are exciting for many but also confusing. Some existing IDR programs are being phased out, others will stay, and some require enrollment.
Let’s break down the existing repayments plans, which will automatically reflect on your loan repayment, and which require an application:
*”At-risk” refers to borrowers who have defaulted on their loans.
The changes to REPAYE are set to go into effect this summer.
What’s Next?
While the REPAYE proposal has been announced, the Department of Education hasn’t offered specifics on when borrowers could enroll. It's unlikely borrowers will be able to enroll in the new program before the student loan freeze ends.
Not sure which IDR plan is the right fit for you? Use Chipper to compare the plans side-by-side to find the one that makes the most sense for your finances. Figure out the lowest payment, highest forgiveness amount, and shortest payoff period with Chipper.
