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PAYE vs. REPAYE for Student Loans: How to Choose

Generally, PAYE is better for married borrowers in cases where both spouses have an income. REPAYE is typically better for single borrowers.
Nov. 13, 2018
Loans, Student Loans
paye-vs-repaye
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Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) are both federal income-driven repayment plans that extend your student loan term, set payments at 10% of your discretionary income and forgive any balance remaining after the repayment period.

But making sense of PAYE and REPAYE’s nuanced differences can make your head spin.

Generally speaking, PAYE is a better option for married borrowers in cases where both spouses have an income. REPAYE is typically better for single borrowers and people who don’t qualify for PAYE.

People with large amounts of debt and high income potential, such as dentists or physicians, may want to weigh factors such as PAYE’s monthly payment cap and REPAYE’s superior interest subsidy.

You’ll need to do the math to determine which of these repayment plans nets out in your favor, but here are guidelines for making the decision.

» MORE: PAYE vs. REPAYE comparison chart

1. Make sure IDR fits for you

Private student loans aren’t eligible for any of the four income-driven repayment (IDR) plans, including PAYE and REPAYE.

There are two main reasons to choose PAYE or REPAYE for federal student loan repayment:

  • You can’t afford payments on the standard, 10-year repayment plan.
  • You’re pursuing Public Service Loan Forgiveness.

In either scenario, your goal is likely to have the lowest possible monthly payment, so an income-driven repayment plan makes sense.

If you’re not pursuing PSLF and can afford to make payments on the standard repayment plan, you should.

If you’re not pursuing PSLF and can afford to make payments on the standard repayment plan, you should. You’ll save on interest and become debt-free faster by sticking with the standard plan. If you have good credit, you can go a step further and refinance your student loans to get a lower interest rate and save more.

It’s also totally fine to go on income-driven repayment temporarily. Doctors, for instance, might want to make payments on PAYE or REPAYE during residency and refinance when they become an attending.

» MORE: 5 strategies for paying off medical school debt

2. Check if you qualify for PAYE

To be eligible for PAYE, you must meet all of these requirements:

  • Have received a federal loan on or after Oct. 1, 2007, and had no outstanding federal loans at that time.
  • Have received a loan disbursement on or after Oct. 1, 2011, or consolidated on or after that date.
  • Have a partial financial hardship, meaning your payment on PAYE would be lower than it would be on the standard repayment plan.

PAYE’s income eligibility requirement effectively means that you qualify only if you’d benefit from the plan by getting a lower payment. On PAYE, your payment will never be higher than it would be on the standard repayment plan.

If you don’t fit PAYE’s requirements, your decision is easy: Choose REPAYE.

All federal loan borrowers qualify for REPAYE, regardless of income or when they borrowed. But if your income is high enough, your payment under REPAYE could be higher than it would be on the standard repayment plan.

3. Run the numbers

Use the government’s Repayment Estimator tool to compare monthly payments on all federal student loan repayment plans, including PAYE and REPAYE. The tool also shows total interest costs and loan forgiveness potential on each plan. To get the most accurate results, include all of the following information:

  • Your and your spouse’s student loan types, balances and interest rates.
  • Your tax filing status, family size and state of residence.
  • Your and your spouse’s adjusted gross income.

Compare the monthly payment amounts under each repayment plan and choose the one with the lowest monthly payment.

Married borrowers will see higher monthly payments on REPAYE if their spouse has an income because REPAYE payments are calculated based on a couple’s combined income — even if they file taxes separately.

Monthly payments under PAYE and REPAYE are identical for single borrowers and borrowers who are married and whose spouse’s income is $0.

You’ll accrue less interest on REPAYE because of the plan’s expanded interest subsidy.

If that’s the case for you, PAYE is likely better if you’re currently single but anticipate getting married in the near future, or you or your spouse anticipate significant income growth.

Otherwise, REPAYE is often the better option. You’ll accrue less interest on REPAYE because of the plan’s expanded interest subsidy.

Under both PAYE and REPAYE, the government subsidizes 100% of unpaid interest that accrues on subsidized loans during the first three years of repayment. In other words, those loans won’t accrue interest even if your payment isn’t enough to cover all of the interest that accrues.

REPAYE goes a step further by subsidizing 50% of unpaid interest that accrues on subsidized loans after the first three years of repayment and on unsubsidized loans during all periods.

4. Keep these things in mind

Before you make a final decision on PAYE vs. REPAYE, make sure you know these details:

  • Consequences of switching repayment plans: Once you choose a repayment plan, avoid switching. When you leave an income-driven repayment plan, the unpaid interest is capitalized, which increases the total interest you pay over time.
  • Impact of losing PAYE eligibility: If your income increases to the point where you no longer qualify to make payments on PAYE, you’ll technically remain on the plan but your payment won’t be based on your income; it will be equal to what you’d pay on the standard plan. Unpaid interest will capitalize, but the capitalized amount is limited to 10% of your original loan balance when you entered PAYE.
  • Tax treatment of forgiven student loans: If you’re projected to get income-driven repayment forgiveness (the Repayment Estimator shows this), keep in mind that the forgiven amount will be taxed as income. In that case, choosing the plan that gives you the lowest monthly payment would maximize the amount you get forgiven but increase your future tax burden. If you’re pursuing PSLF, you don’t have to worry about this; loans forgiven through PSLF aren’t taxed as income.
  • Differences in repayment timelines: If you have any loans from graduate school, your repayment schedule is 25 years on REPAYE. Otherwise, the repayment period on REPAYE is 20 years. The repayment term on PAYE is 20 years, regardless of your loan type.
  • PAYE vs. REPAYE

     PAYEREPAYE
    RequirementsMust have a partial financial hardship.

    Must have received a federal loan on or after Oct. 1, 2007, and have had no outstanding federal loans at that time. Also must have received a loan disbursement on or after Oct. 1, 2011, or consolidated on or after that date.
    Anyone with qualifying federal loans is eligible.
    Payment amount10% of discretionary income, but never more than you’d pay on the standard, 10-year plan.10% of discretionary income, with no cap. Payments could be higher than they’d be on the standard plan.
    Does your spouse’s income count?No, if you file taxes separately.Yes, even if you file taxes separately.
    Repayment period20 years20 years if you only have undergraduate loans.

    25 years if you have any graduate school loans.
    Interest subsidyThe government pays 100% of unpaid interest that accrues on subsidized loans in the first three years of repayment.The government pays 100% of unpaid interest that accrues on subsidized loans in the first three years of repayment.

    It also pays 50% of unpaid interest that accrues on subsidized loans after the first three years and on unsubsidized loans during all periods.
    Capitalization limitIf you no longer qualify for PAYE because your income becomes too high, the amount of unpaid interest that can be capitalized is limited to 10% of your loan balance when you entered the plan. No limit to the amount that can be capitalized.

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