Pay As You Earn
Pay As You Earn (PAYE) was introduced to help you handle your student loan debt this has been active since 2012.
Your prospective monthly payments must be smaller than your standard payments to qualify for the PAYE plan, which is calculated at 10% of your discretionary income. The PAYE plan offers student loan forgiveness after 20 years of repayment.
To qualify for PAYE, there are specific requirements you must meet:
- You must have not have taken out a federal student loan before Oct. 1, 2007.
- You must prove that you need assistance in repaying your student loans and have received disbursement of a Direct Loan after Oct. 1, 2011.
Revised Pay As You Earn
The Revised Pay As You Earn (REPAYE) Plan was introduced in December 2015 and is the newest option for income-driven repayment plans. Direct Loans, Stafford Loans, and Graduate PLUS Loans are eligible for REPAYE, as well as other non-parent federal student loans that are consolidated into Direct Loans.
Monthly payments are set at 10% of your discretionary income. (And note that there’s no upward limit on how much those payments might be.)
So, in 2015 Obama continued their efforts to expand student debt relief with Revised Pay as You Earn. The program offered the features of PAYE but made it accessible to a larger audience. However, REPAYE isn’t exactly the same as it’s cousin; in fact, the changes are significant. Here is what you need to know…
REPAYE includes a student loan interest subsidy that can be a huge benefit for borrowers with monthly payments that don’t cover interest charges. If they are on REPAYE, 100% of unpaid interest each month is paid for on subsidized loans. And 50% of unpaid interest is subsidized for unsubsidized student loans.
So, if you don’t have enough income to repay your loans on a standard plan, REPAYE can provide a significant benefit. Just make sure you stay on top of recertification. Or, find a middle man – student loan debt relief companies basically act as a go-between for you and the servicer. Since you hire them, they’re more likely to help you stay on track and address challenges as they arise.
If you’ve applied for the other plans but were rejected, the Income-Contingent Repayment (ICR) Plan may be your next best option for reducing your monthly student loan payment. It’s the only IDR plan, for example, for which Parent PLUS Loans are eligible — though you will have to consolidate these loans first.
Monthly payments are set as the lesser of either 20% of your discretionary income, or monthly payments when the loan is amortized over 12 years.
ICR also offers student loan forgiveness after 25 years
Should you switch to income-driven repayment?
There are some major benefits to enrolling in an IDR plan. But IBR and other IDR plans have some potential drawbacks as well.
Here are the central pros and cons you should be aware of as you consider enrolling in an IDR plan.
Pros of income-driven repayment plans
An income-driven repayment (IDR) plan is a repayment plan for people with federal loans created to make your monthly loan payments more affordable. Income-driven repayment plans don’t cover private loans.
Income-driven plans base your monthly payments on how much money you make. The best part is that if you don’t have a job, or if your income is low enough, you can bring your payments down to as low as $0.