Article 5 min

REPAYE vs. SAVE: What Borrowers Should Know

Revised Pay As You Earn (REPAYE) was a federal income-driven repayment (IDR) plan designed to help student loan borrowers manage monthly payments based on their income. As of fall 2023, REPAYE has been replaced by the more generous Saving on A Valuable Education (SAVE) plan. Borrowers previously enrolled in REPAYE were automatically transitioned to SAVE, which may reduce monthly bills by half in many cases.

Summary

💡 Understanding REPAYE: A Predecessor to SAVE

REPAYE was a repayment option that capped payments at 10% of discretionary income and offered loan forgiveness after 20 years for undergraduate debt or 25 years for graduate debt. It stood out from other income-driven repayment plans thanks to its generous interest subsidy: the government paid the full interest difference on subsidized loans and half on unsubsidized ones for the first three years. Afterward, it continued to cover half the interest on all federal loan types. REPAYE was especially beneficial for borrowers with higher incomes, no graduate debt, and those who expected their income to rise significantly over time. However, it factored in spousal income regardless of tax filing status, which could increase payment amounts for married borrowers.

Takeaways:

• REPAYE capped payments at 10% of discretionary income and offered loan forgiveness after 20–25 years.

• It provided a generous interest subsidy, helping borrowers manage accumulating interest.

• Borrowers with only undergraduate loans could qualify for forgiveness after 20 years.

• Spousal income was always considered, potentially increasing payments for married couples.

• REPAYE has been replaced by the SAVE plan, which offers even greater benefits.

Key Terms

• Discretionary Income: The portion of income remaining after subtracting basic living expenses as defined by the government.

• Interest Subsidy: A benefit where the government covers part or all of the interest that accrues on your student loans.

• Income-Driven Repayment (IDR): Plans that adjust monthly loan payments based on a borrower’s income and family size.

• Loan Forgiveness: The cancellation of some or all remaining student loan debt after a certain number of qualifying payments.

📌 When REPAYE Was a Good Fit

REPAYE served a wide range of borrowers well, particularly those without graduate school debt, those who anticipated future income increases, or those who didn’t qualify for other IDR plans. Unlike PAYE or IBR, REPAYE didn’t require financial hardship for eligibility and was available to all federal direct loan borrowers, excluding those with parent PLUS loans. It was especially suitable for single borrowers, as spousal income played a significant role in payment calculations. With capped payments and continued eligibility regardless of income increases, REPAYE was a strategic choice for those expecting to earn more over time without worrying about a ballooning payment structure. However, it may not have been ideal for married borrowers or those with graduate debt due to the extended forgiveness period.

Takeaways:

• REPAYE was ideal for single borrowers with undergrad debt and growing income.

• Payments always stayed at 10% of discretionary income, even as income increased.

• Parent PLUS loans were not eligible for REPAYE.

• Married borrowers could face higher payments due to combined income consideration.

Key Terms

• Financial Hardship: A required condition for some repayment plans based on high debt-to-income ratios.

• Federal Direct Loans: Loans issued directly by the U.S. Department of Education.

• Consolidation: Combining multiple federal loans into one new loan, often to gain eligibility for specific plans.

🛠️ How to Apply or Transition to REPAYE (Now SAVE)

While REPAYE has now been phased out, its application process shared similarities with how borrowers can now enroll in SAVE or other IDR plans. Applications could be submitted online via studentaid.gov or through paper forms, requiring income and family size documentation. Borrowers could opt to have their servicer place them in the lowest-payment plan automatically or select a specific plan like REPAYE. Additionally, from now until March 2024, self-reported income is temporarily allowed, removing the need for tax documentation. To stay on an IDR plan, borrowers must recertify their income annually. If they miss this deadline, they could be placed on a more expensive alternative plan, and unpaid interest may be capitalized, increasing their total debt.

Takeaways:

• Borrowers can apply for IDR plans online via studentaid.gov.

• Self-reported income is temporarily accepted through March 2024.

• Recertification is required annually to maintain enrollment in the plan.

• Missing recertification deadlines could lead to higher payments and interest capitalization.

Key Terms

• Recertification: The annual process of updating your income and family information for IDR eligibility.

• Capitalization: When unpaid interest is added to the loan principal, increasing the amount you owe.

• Loan Servicer: The company that manages your student loan billing and repayment.

🎯 Alternatives to REPAYE and SAVE

Borrowers who find that IDR plans aren’t the right fit still have other federal repayment options. Graduated and extended repayment plans reduce monthly payments but don’t consider income and don’t offer forgiveness. Refinancing through private lenders may also lower payments or interest rates, but it comes with the trade-off of losing federal protections. That includes IDR eligibility, deferment, and forbearance options. Choosing to refinance should be approached with caution and is usually only best for those with stable income and strong credit.

Takeaways:

• Graduated and extended plans are non-IDR alternatives but lack forgiveness.

• Refinancing can lower interest rates but sacrifices federal loan benefits.

• Carefully weigh the pros and cons of refinancing federal student loans.

Key Terms

• Graduated Repayment Plan: Payments start low and increase over time.

• Extended Repayment Plan: Offers lower payments over an extended period (up to 25 years).

• Refinancing: Taking out a new private loan to pay off existing student loans, potentially lowering interest rates.

Conclusion

Though REPAYE is no longer available, its features laid the groundwork for the SAVE plan, which improves upon REPAYE’s structure by offering even lower payments and expanded benefits. Understanding how REPAYE worked can help borrowers appreciate the evolution of federal repayment plans and make informed decisions about their current and future student loan options. Whether through SAVE, another IDR plan, or refinancing, finding the right strategy starts with knowing your goals, loan types, and income expectations.