This is my favorite time of year. The new year brings fresh opportunities, chances to improve ourselves and of course, new federal student loan repayment plans.
While you were ripping open presents under the Christmas tree or engaging in whatever debauchery you call “tradition” on New Year’s Eve, I was reading about student loans. Is it because I’m a nerd who finds this interesting? Well yes, but it’s also because I care. So listen up because this stuff’s important.
As of Dec. 17, 2015, the Revised Pay As You Earn Plan went into effect. REPAYE, as the name suggests, is a reworking of the Pay As You Earn Plan. It allows around five million Direct Loan borrowers to cap student loan repayments to 10 percent of discretionary income.
How do you know if you are eligible for the REPAYE plan? If you have a Stafford Loan, Direct Loan or a Graduate PLUS Loan, you qualify regardless of when you borrowed the money. You may qualify if you consolidate other student loans into a Direct Loan. Consolidated Parent PLUS Loans and private loans don’t qualify.
Now that you know whether you qualify, let’s look at your future monthly payments.
If you are not familiar with Income Driven Repayment Plans, here are the basics. Annual income affects how much you pay. For example, a graduate earning $50,000 a year pays more than a graduate earning $30,000. If you want to get technical, payments will be a percentage of your discretionary income, which the U.S. Department of Education defines as adjusted gross income minus 150 percent of the state poverty guideline for your family size.
REPAYE differs from other income-based payment plans because payments can be no larger than 10 percent of your discretionary income. Other IBR plans require 15 percent.
REPAYE also includes a new policy where the government pays some of the accrued interest on your loan. On a subsidized loan, the government covers 100 percent of interest for the first three years. Afterward, the government pays 50 percent. For unsubsidized loans, the government pays 50 percent of interest. As far as I know, this is the only plan that lowers interest payments for unsubsidized loans.
Trust me when I say it’s an awesome feature allowing you to pay less money, significantly, over the lifetime of your loan. Some Direct Loans have interest rates near 5 percent, so we’re talking thousands in savings.
Loan forgiveness plans available to Direct Loans apply to REPAYE. The government forgives your remaining loan balance after 20 years, 25 for graduate students. Forgiveness doesn’t mean it goes away, the amount forgiven is taxable on your income taxes.
REPAYE closes some loopholes when it comes to spouses. For instance, the U.S. Department of Education includes your spouse’s income regardless of whether you file jointly or separately, which could raise your payments. However, your spouse’s student loan balance could reduce your payments.
Also, for purposes of REPAYE, your family size is anyone who lives with you as long as you pay 50 percent of their expenses. Have a significant other and always pay for them? Mazel tov, you are now family.
Congratulations! You now know more about student loans than 90 percent of students. You can now teach all your friends about loans as you sit around drinking and laughing at your impending crippling debt.
How do you know if REPAYE is right for you? I wish the answer was simple, but every case is different. REPAYE could be a worse option than your current loan. Research your available options, and consult with professionals about your student loans.
Jay is a 21-year-old finance senior from St. Simons Island, Georgia. You can reach him on Twitter @hjcranford.
Student Loan Resources
LSU’s Financial Aid website has great resources and counselors who you can contact.
The U.S. Department of Education’s Student Aid website will answer any question you could ever have about loans. They also have tools such as repayment calculators to help you better compare your loan options.
Apply here for the REPAYE, or any other IDR, student loan plans.
Jay is a 21-year-old finance senior from St. Simons Island, Georgia. You can reach him on Twitter @hjcranford.