Student Loan Repayment Series: REPAYE

For this week's student loan tip we are going to touch on the Revised Pay As You Earn (REPAYE) income-based repayment option. 

REPAYE is an income-based repayment option for federal student loans. Under REPAYE your monthly student loan payment is generally 10% of your discretionary income.

In some cases, your monthly payment might be higher than it would be under the standard 10-year repayment option. The reason for this is because REPAYE takes into consideration your income and family size, so if your income increases over time your payment will likely increase. Every year you have to recertify your income by a deadline.

If you don’t recertify your income you will be removed from the REPAYE Plan and your monthly payment will no longer be based on your income. At this point, your unpaid interest will be capitalized. This means that the interest will be added to the principal balance of your loan, thus increasing the overall cost of your loan.

The repayment time frame for REPAYE is 20 years if all of your loans under the plan were for undergrad. If you have any loans that you’re repaying from graduate or professional school then you will likely be in the REPAYE program for 25 years (unless you are eligible for Public Service Loan Forgiveness).

Parent Plus Loans

Are you a parent with a parent PLUS loan for your child’s education? The PLUS loan is a student loan and if you work in the public sector or for a non profit you may be eligible for public service loan forgiveness. PSLF forgives your remaining amount of student loans, once you achieve the required 120 monthly payments under the correct payment plan, tax free. Be sure to check out the eligibility requirements to see if you’re eligible.

Taxability of Public Service Loan Forgiveness

Did you know that if you have student loans forgiven under the Public Service Loan Forgiveness the forgiven loan balance is tax free. However, if your student loans are forgiven under other types of income based repayment plans the forgiven balance is considered taxable income and you have to pay taxes on that balance in the tax year of forgiveness. If you are in one of these repayment plans you may want to start setting aside money now to cover the tax bill you will be faced with.

Setting Yourself Up for a Scholarship - Community Work

If you’re in high school or college, make yourself stand out from your peers by getting involved in the community. You can do volunteer work and join school/community organizations. This involvement will help you feel better as a person and will build you a great resume. It will also make you a more qualified candidate for many scholarships and will build your professional network.

Public versus Private Student Loans

Take out federal student loans before taking out private loans. Federal student loans usually offer lower fixed interest rates, less interest accrues on subsidized loans while you are in school, they offer the ability to access income-driven repayment options and depending on your career and type of repayment option you could also be eligible for Public Service Loan Forgiveness.  Fed Loans also generally have a disability clause.

Tracking Your Student Loans

If you have student loans or expect to, create a spreadsheet to track these loans. It’s likely that every semester you will be taking out loans and it can be very easy to forget how many you took out, especially when they are through different loan providers. Things to include in your spreadsheet would be: what type of loan was taken out, who the loan provider is along with their contact information, when the loan was taken out, the amount the loan is for, what the grace period is, and what the interest rate is.

Working in a Public Service Field with Student Loans?

Are you thinking about a career in a public service field? If you are, be sure to check out Public Service Loan Forgiveness. Depending on the types of loans you have and what type of organization you plan on working for you may be eligible for Public Service Loan Forgiveness (PSLF). If you are eligible, be sure to set up your loan repayments with an eligible repayment plan.