At the end of October, the Department of Education finalized changes to a common student loan repayment program, extending the benefit to 5 million more student loan borrowers who didn’t previously qualify for it. The Revised Pay As You Earn Program (REPAYE) became available Dec. 17 and allows anyone with a federal Direct loan to limit their monthly payments on those loans at 10% of their discretionary income. After 20 years of payments (25 if you have any graduate loans), the remaining balance on the loans will be forgiven.
To figure out if you qualify for REPAYE, you first need to know what kind of loans you have. You can log into StudentAid.gov to see your loan summary, and any loans labeled “Direct” can qualify for REPAYE. Unlike the previous Pay As You Earn program and income-based repayment, there’s no income requirement to qualify for REPAYE. That means neither your debt balance nor your income level keep you from qualifying for REPAYE.
If you don’t have Direct loans or you have a mix of Direct and other loans, you could consider applying for a Direct Consolidation Loan, which would combine your loans into one monthly payment and make the balances eligible for REPAYE. Keep in mind that private education loans are not eligible for consolidation through this program. Once you’ve determined you have Direct loans (or taken out a Direct consolidation loan), you can apply for REPAYE.
There are a handful of differences between REPAYE and the old PAYE program, so it’s important to review the details before you apply. One big difference to consider is how a large increase in salary could affect your monthly payments. Under PAYE and IBR, your monthly loan payments are capped at the payment you would have had under the 10-year standard repayment plan. With REPAYE, that’s not the case. Your REPAYE payment will always be 10% of your monthly discretionary income, even if it amounts to more than the original payment under the 10-year plan. If you’re married, a spouse’s pay increase could have the same result.
To find out more about REPAYE or other student loan repayment programs, there are plenty of resources on the Education Department’s student aid website. Your can also ask your student loan servicer for information.
You’ll need to apply for any repayment program, so make sure you continue to make your current student loan payments until you’ve been enrolled in a different repayment plan. If you need to consolidate your loans first, that will add time to the process. Missing student loan payments can result in late fees and could seriously damage your credit score. You can see how your student loans affect your credit by getting a free credit report summary every 30 days on Credit.com.
More on Student Loans:
- How Student Loans Can Impact Your Credit
- Can You Get Your Student Loans Forgiven?
- A Credit Guide for College Graduates