What Is REPAYE? (The Pros and Cons)

REPAYE stands for Revised Pay As You Earn. This is a federal student loan repayment option that adjusts your monthly payments based on your income.

It is one of four student loan payment plans that use the borrower’s income to help them manage their loan payments, without overwhelming their ability to pay their living expenses.

REPAYE stems from the effective PAYE (Pay As You Earn) plan but expands on some of its details. As one of four income-driven options, REPAYE works well for a range of graduates who struggle to make monthly payments on their student loans.

How Does REPAYE Work? 

The biggest difference between PAYE and REPAYE is that REPAYE is open to anyone who accepted student loans from the Department of Education (DOE). PAYE is only available to federal student loan borrowers who took money during or after October 2007.

There are still people paying student loans from the early 2000s and even before. REPAYE offers them another method for adjusting their payment schedule so they can manage their loans.

Most federal student loans are eligible for REPAYE. Loans that cannot use the REPAYE program include: 

• Parent PLUS loans
• Direct consolidated loans containing PLUS loans made to parents
• Federal Family Education Loan (FFEL) PLUS loans to parents
• FFEL consolidated loans with a portion as FFEL parent PLUS loans
• Federal Perkins loans (unless they are consolidated using the direct consolidation loan program)

REPAYE considers your annual income and adjusts your monthly student loan payments to about 10% of your discretionary monthly income. Like other income-driven repayment options, REPAYE stretches your loan repayment period to:

• 20 years if all loans affected by REPAYE were for an undergraduate degree
• 25 years if loans were also for graduate or professional study after undergrad

In contrast, PAYE adjusts the repayment plan to 20 years regardless of what postsecondary education level you used the loan to complete.

The Pros and Cons of REPAYE for Your Student Loans

There are some great benefits of REPAYE:

• This plan offers some of the lowest possible monthly payments out of all the income-driven repayment plans.
• There is an interest subsidy through the federal government for very low-income borrowers.
• Unpaid interest does not capitalize.
• The Public Service Loan Forgiveness (PSLF) program uses REPAYE as one income-driven payment option.

However, there are still some downsides to switching to REPAYE:

• Your payments are always based on your income, even if monthly payments exceed your standard repayment plan amount.
• Missing the recertification period can lead to penalties.
• You still pay more in interest over the life of the loan than you would under the standard repayment plan.

Like any income-driven repayment plan, the amount you pay each month will change annually. This is because you submit information to the DOE that lets them know you still qualify for this repayment option. They look at your income and adjust your monthly payments accordingly.

If your income or family size changes drastically before you recertify for the next year, you can submit updated information to properly adjust your payments. For example, you become employed at a higher-paying position, or you and your spouse have a child.

Along the same lines as other types of income-driven repayment, REPAYE spreads your payments out over much more time so they are smaller each month. But this means that you will pay far more money overall in interest payments than you would if you stick with the standard 10-year repayment plan.

Like other forms of payment on federal loans, you can always pay a little more on your loan in a month that you have more money to help pay down interest payments. You will not be penalized for paying off your loan faster than the allotted 20 or 25 years.

Unlike some types of income-driven repayment, REPAYE always considers your income and family size when calculating your monthly payments. If you end up making larger payments than you would under the standard 10-year repayment plan, REPAYE does not adjust these payments to match the other, lower amount. You must pay more per month that year.

Another difference from many other income-driven options is that REPAYE offers an interest payment subsidy. If your monthly payment does not cover accruing interest, the government will pay 50% of the difference. While you may pay more in interest over the life of a REPAYE program loan, you will pay less in interest thanks to this subsidy.

1 of 4 Options to Repay Your Federal Student Loans

Like switching to an income-driven repayment plan, you can talk to your student loan servicer about whether you qualify for REPAYE and how you can set up this payment plan. Be sure to recertify by the deadline every year. Your loan servicer will send you a reminder when your recertification deadline approaches.

If you fail to recertify for the REPAYE plan, the DOE removes you from this payment plan. Any unpaid interest will be capitalized into the principal of your loan after you miss the recertification date and you will be placed on an alternative payment plan that does not consider your income when calculating monthly payments.

Instead, you must pay your loan in full either: 

• 10 years from the date you began repaying under REPAYE, or
• By the ending date of your original REPAYE option, whichever is sooner

While this can be harsh, you can still choose another income-driven repayment plan if you qualify for it. You cannot get back on a REPAYE plan, including your original plan, but you may be able to set up a graduated payment plan, an income-based plan, or another option that works better than a standard repayment plan.

Income-driven plans like REPAYE are wonderful options for those who struggle financially, either with low-paying jobs, large amounts of debt, or increasing family size. REPAYE is a great option for nearly every type of federal student loan; work with your loan servicer to compare programs and determine which offers the best option for repaying your loans.