Starting last week, all borrowers with federal Direct student loans have access to a new repayment plan with monthly payments limited to 10% of their discretionary income. You can enroll regardless of when you borrowed. If you’re having trouble affording your monthly payments — or just want the assurance of payments based on your income — check out the Revised Pay As You Earn (REPAYE) plan and see if it’s right for you.
REPAYE and other “income-driven” plans can help keep monthly payments manageable, but may not be the best fit for everyone. Depending on how your income changes over time, you may pay more in total than you would under some other repayment plans, such as the 10-year standard plan.
Key information for borrowers considering REPAYE:
- How much will I pay each month? Your monthly payment will be 10% of your “discretionary income” (that’s your income minus 150% of the poverty level for your family size). If your income is very low, payments can be as little as $0 until your income rises. To see what your payment would be in REPAYE and other plans, you can use the U.S. Department of Education’s easy online Repayment Estimator.
- How long will I be making payments? Up to 20 years if you borrowed only for undergraduate education, or up to 25 years if you took out any federal loans for graduate school. If you reach the time limit and have not yet fully repaid the loan, the remaining balance will be forgiven (but under current IRS rules, it will be treated as taxable income). If you work full-time for the government or a nonprofit organization, you may be eligible to have your loans forgiven after 10 years of payments, tax-free.
Read more at the Institute for College Access and Success.