It seems like yesterday when there were only a handful of options for dealing with federal student loans: consolidation, deferment, and forbearance. Then, in a matter of a few years, the government created a slew of acronymic hardship repayment programs: ICR, PSLF, IBR, and PAYE. Keeping these plans straight is difficult since they share so many features. What’s more, the Department of Education is proposing a new plan: Revised Pay-As-You-Earn, aka REPAYE.
So how does REPAYE differ from (as you can guess) PAYE? There are a several ways.
(1) Widespread eligibility: As of now, borrowers are eligible for PAYE only if they had no direct loans (or older guaranteed loans) prior to October 1, 2007. REPAYE extends its eligibility to all borrowers with direct loans.
(2) Continuous eligibility: Income-sensitive repayment plans currently require borrowers to show that they have a “partial financial hardship,” meaning their payments must exceed what would normally be required under a 10-year repayment plan for eligibility and for their payments to count toward eventual loan forgiveness. REPAYE does away with the partial financial hardship requirement, so borrowers can’t be kicked off when their incomes rise.
(3) Extending loan forgiveness for graduate students: PAYE forgives unpaid loan balances after 20 years of timely payments under a partial financial hardship. REPAYE will add 5 years for borrowers who take out any loan for a graduate program. The idea is to make sure graduate students, who tend to borrow more money, pay longer into the program before receiving loan forgiveness.
(4) Combining spousal income: Currently, PAYE and other plans only count borrowers’ individual incomes. It doesn’t matter if they live with a high-earning spouse. REPAYE will include spouse’s incomes, even for borrowers filing jointly.
(5) Addressing borrowers who don’t provide documentation on time: Earlier this year, hundreds of thousands of borrowers were thrown off income-sensitive repayment plans for not filing their income documentation on time with the Department of Education. Under REPAYE, borrowers who do not file their documentation on time will be placed on an alternative repayment plan that costs either the amount necessary to repay the loan in 10 years or the end of the REPAYE period (20 or 25 years), whichever occurs sooner. Borrowers will need to provide income documentation for the missing time, so they will pay more if their incomes increased.
(6) Reduce accrued interest: Borrowers whose payments do not cover the interest charges will not pay as much as under REPAYE. The government will forgive unpaid interest for borrowers with subsidized loans for the first three years. Borrowers with unsubsidized loans (or subsidized loans after the three-year repayment period) will be charged only half the unpaid interest.
(7) Reduce capitalized interest: Currently borrowers who leave PAYE or no longer have a partial financial hardship have all their unpaid interest capitalize onto their loans. Under REPAYE, the amount of interest that would be capitalized would be limited to 10 percent of the loan’s principal balance.
REPAYE might benefit some debtors more than others, particularly unmarried college graduates as opposed to married graduate debtors. The Department of Education hasn’t adopted it yet, but it probably will. You can find the proposed version here. If you have financial problems stemming from debts that can’t be placed in a federal income-sensitive repayment plan, then you should talk to an experienced New York bankruptcy lawyer.
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