Submitted by New Jersey Bankruptcy Attorney, Lee M. Perlman.
In early 2015, President Obama proposed the Student Aid Bill of Rights, which included a provision to make it easier for borrowers to repay their students loans. As the result of this provision, the government introduced a new repayment option for federal student loans: Revised Pay As You Earn (REPAYE).
REPAYE is an income-driven repayment plan, making it similar to other options such as Pay As You Earn (PAYE), income-based repayment (IBR), and income-contingent repayment. However, REPAYE has some big differences from these, too–including giving all federal student loan borrowers access to the lowest payment option possible, no matter when they began borrowing.
Borrower Eligibility
All Direct Loan (DL) borrowers are eligible for REPAYE regardless of when they borrowed their loans. FFELP borrowers can consolidate into DL to apply for REPAYE. Parent PLUS loans and consolidation loans that contain Parent PLUS loans are not eligible. Defaulted loans and private loans are also not eligible.
How This Is Different
With other income-driven plans, only certain borrowers are eligible. By opening this plan up to all DL borrowers, many more of you will have the chance to take advantage of an income-driven option.
Income Requirement Eligibility
None.
How This Is Different
Unlike IBR and PAYE, you don’t need to have a partial financial hardship to qualify for REPAYE. Again, this makes more borrowers eligible for this option.
Monthly Payments
REPAYE caps payments at 10% of your discretionary income, which is your adjusted gross income minus 150% of the state poverty guideline for your family size. Payments can be as low as zero dollars per month.
How This Is Different
Previously, the lowest payment option for borrowers with loans disbursed earlier than October 1, 2007, was 15% of their disposable income with the Old IBR plan. Now, these borrowers struggling with their payments can get an even lower monthly payment option that may fit their budgets better.
Spouse Information
Under REPAYE, your spouse’s income will be used in calculating your monthly payment–whether you file your federal tax returns jointly or separately. The only exceptions are if you are legally separated or you cannot reasonably access your spouse’s income information. Also, spouses cannot be included in the family size if their income isn’t provided.
How This Is Different
Under all of the other income-driven repayment options, spousal income is only included in the income calculation if you file jointly. This loophole allowed families to lower their monthly payment by not providing a spouse’s income. In this case, borrowers could also include the spouse in the family size–lowering their payments even more. REPAYE closes this loophole.
Forgiveness
For borrowers who only have undergraduate loans, their remaining balance will be forgiven after 240 eligible payments and 20 years, but this amount would be taxable.
For borrowers with any graduate or professional loans, their remaining balance will be forgiven after 300 payments and 25 years, but this amount may be taxable.
If you work for a public or nonprofit employer, your balance may be forgiven after 10 years and 120 eligible payments, and this amount wouldn’t be taxable.
How This Is Different
Many people are not happy with this provision for forgiveness. Under all other income-driven repayment plans, borrowers may receive forgiveness after the same amount of eligible payments. Under REPAYE, those with any graduate loans would have to pay for an extra 5 years to receive forgiveness.
Interest Subsidy
For your first consecutive 3 years under REPAYE, the government pays the entire difference between the monthly payment and the monthly accruing interest (excluding periods of economic hardship deferment) on subsidized loans and the subsidized portion of Consolidation loans. After that, the government pays 50% of the difference between the monthly payment and the monthly accruing interest, and the borrower is responsible for the other half.
The government pays half of the difference between the monthly payment and the monthly accruing interest on unsubsidized loans, or the government pays for the unsubsidized portion of Consolidation loans.
How This Is Different
This will significantly lower the overall debt owed by borrowers over the lifetime of the loans, since borrowers are only responsible for half of the interest accruing that is not covered by monthly payments.
Interest Capitalization
Accrued interest is added to the principal balance (capitalized) when you leave REPAYE.
How This Is Different
Capitalization makes loans very costly for borrowers, because future interest accrues on the higher principal balance. With capitalization occurring only when borrowers leave REPAYE, they will save a lot of money over the lifetime of the loan. Just remember to reapply every year. Leaving REPAYE also includes if you forget to recertify your income and family size annually.
Application
You can apply for REPAYE online at www.studentloans.gov. Applications will be accepted sometime in mid-December 2015.
SALT™ is a free and unbiased nonprofit-backed financial education program dedicated to giving students, alumni, and families the money knowledge they need for college and beyond.
This post was originally authored by SALT contributing writer Ashley Norwood. ©2015 American Student Assistance.
Originally published here by the Huffington Post.