REPAYE Compared to IBR and PAYE For PSLF

REPAYE is the new repayment plan that’s been in the works, expected to be available in late-2015.

So should you expect to change your income-drive repayment plan to REPAYE?

Let’s take a look at REPAYE in the context of PSLF. Keep in mind, REPAYE is still being drafted and perfected; we’ll update on any changes.

Income Requirement to Enter Plan

Whereas under IBR and PAYE, Partial Financial Hardship (PFH) is a requirement prior to entering the plan, there is no PFH requirement under the new REPAYE plan.

NOTE on PFH:

For IBR, PFH is a circumstance in which the annual amount due on your eligible loans, as calculated under a 10-year Standard Repayment Plan, exceeds 15% of the difference between your adjusted gross income (AGI) and 150% of the poverty line for your family size in the state where you live. For PAYE, PFH is a circumstance in which the annual amount due on your eligible loans, as calculated under a 10-year Standard Repayment Plan, exceeds 10% of the difference between your adjusted gross income (AGI) and 150% of the poverty line for your family size in the state where you live. For both plans, the amount that would be due under a 10-year Standard Repayment Plan is calculated based on the greater of the amount owed on your eligible loans when you originally entered repayment, or the amount owed at the time you selected the IBR or PAYE plan.

That’s great news! REPAYE does not require borrowers to have PFH before they enter REPAYE, unlike IBR and PAYE. Hold Fast to Dreams advocated this change previously. The problem with the PFH requirement as in initial requirement for IBR/PAYE was that borrowers who had:

  1. Low income immediately after graduation, as most borrowers do, (sufficient for PFH) but didn’t jump on IBR/PAYE,
  2. Then high income (let’s say because they got a high-paying job; insufficient for PFH for IBR/PAYE)
  3. Then low income again (finally jumps on IBR/PAYE),

would’ve missed out on payments eligible for PSLF during the times of the initial low income (1) and high income (2).

Let’s compare that outcome with REPAYE. The new REPAYE got rid of the income requirement of PFH to enter the REPAYE plan. This sounds like good news because the above problem would disappear, except REPAYE includes an additional requirement about updating you income.

 

Income Documentation

The problem with REPAYE is the treatment of borrowers who do not submit income documentation on time. Under REPAYE:

  • If the borrower does not provide the income or family size information needed to recalculate the monthly repayment amount, the borrower is removed from REPAYE and placed in an alternative repayment plan. The monthly payment amount under the alternative repayment plan equals the amount required to pay off the loan within 10 years from the date the borrower begins repayment under the alternative repayment plan, or by the end date of the 20- or 25-year REPAYE repayment period, whichever is earlier.
  • The borrower may return to the REPAYE plan if the borrower provides the income and family size information for the period that the borrower was on the alternative repayment plan. If the payments the borrower was required to make under the alternative repayment plan are less than the payments the borrower would have been required to make under the REPAYE plan, the monthly REPAYE payment amount is adjusted to ensure that the excess amount owed by the borrower is paid in full by the end of the REPAYE repayment period.

Here’s the kicker:

  • Payments made under the alternative repayment plan do not count toward Public Service Loan Forgiveness, but may count for forgiveness under the REPAYE plan or another income-driven repayment plan if the borrower returns to the REPAYE plan or changes to another income-driven repayment plan.

 

That means borrowers who don’t submit the annual income documentation will be removed from REPAYE and placed in an alternative plan. Payments made under that alternative plan won’t count towards PSLF! The payments do count for the 20/25 year forgiveness though.

Compare that to IBR/PAYE. Borrowers who do not update their annual income documentation are required to pay the equivalent to if they had entered a fixed 10-year repayment plan when they entered PAYE. As long as the borrower remains in IBR/PAYE, monthly payments will count toward the required 120 payments for PSLF.

Let’s take a closer look (underlined):

The current PSLF rules from the Department of Education, which permit the 120 qualifying payments to be made under one or more of the following Direct Loan Program repayment plans:

  • The IBR Plan
  • The Pay As You Earn Repayment Plan
  • The ICR Plan
  • The 10-Year Standard Repayment Plan
  • Any other Direct Loan repayment plan, but only payments that are at least equal to the monthly payment amount you would be required to pay under the 10-Year Standard Repayment Plan may be counted toward the 120 qualifying payments for PSLF

The new PSLF rules after REPAYE will be:

  • 685.219 Public Service Loan Forgiveness Program.

[* * *]

(c) Borrower eligibility. (1) A borrower may obtain loan forgiveness under this program if he or she—

[* * *]

(iv) Makes the required 120 monthly payments under one or more of the following repayment plans—

(A) Except for a parent PLUS borrower, an income-based repayment plan, as determined in accordance with §685.221;

(B) Except for a parent PLUS borrower, an income-contingent repayment plan, as determined in accordance with §685.209;

(C) A standard repayment plan, as determined in accordance with §685.208(b); or

(D) Except for the alternative repayment plan described in §685.209(c)(4)(vi) and (vii), any other repayment plan if the monthly payment amount is not less than what would have been paid under the Direct Loan standard repayment plan described in §685.208(b).

Our advice for borrowers is to get on IBR/PAYE as soon as possible and stay on IBR/PAYE until you qualify for PSLF. Although borrowers (all Direct Loan student borrowers regardless of when the student borrowers received their Direct Loans) can get on REPAYE even if they don’t have PFH, if they ever forget to update their annual income, REPAYE will make you pay for it with non-qualifying PSLF payments. Alternatively, if you do join REPAYE, make sure you submit the annual income documentation!

For more info, we recommend the most current version of REPAYE: http://www2.ed.gov/policy/highered/reg/hearulemaking/2015/paye3-issue1.doc

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  • Joshua Ball
    • http://www.holdfasttodreams.org askhftd

      Well, the possibility of nixing/capping programs such as PSLF and modifying the Income-Based Repayment Plans such as PAYE, etc., has been in the talks with both sides. In March 2014, President Obama’s Proposed Budget notoriously mentioned the $57,500 cap on PSLF (See our post here: http://www.holdfasttodreams.org/obamas-2015-proposed-budget-impact-on-public-service-loan-forgiveness-pslf/). The Republicans also cited Obama’s “proposed changes” as evidence of the need for streamlining repayment options for students here: http://edworkforce.house.gov/UploadedFiles/HEA_Whitepaper.pdf.

      So what happens if PSLF is nixed/capped? We’ve discussed it here, after Obama’s Proposed Budget left borrowers with a bunch of questions: http://www.holdfasttodreams.org/ed-official-statements-on-pslf-cap/ (In summary, the ED’s position is that Obama’s 2015 Budget Proposal will not impact current borrowers. The “old” repayment plan and terms will be “grandfathered” in for the remainder of your loan term, e.g., borrowers repaying under IBR/PAYE will be able to file “married filing separately” and/or no $57,500 cap for the lifetime of their loan.).

      We believe the same analysis would apply to the modification of the Income-Based Repayment Plans.

      • Joshua Ball

        So, heres a question. I understand the grandfathering in, that makes sense. My situation is I dont qualify for PAYE, since my loans were prior to 2007, which is why Im looking forward to the expansion. If the expansion goes through, and I sign up, then it gets repealed, am I “grandfathered-in”? Or because the PAYE wasnt available when I took the loans out would I be screwed? I dont see expansion being repealed by next year, as Obama would have to sign off on it, Im assuming. So confusing. hard to get excited about the expansion when its already on the chopping block before its enacted.

        • http://www.holdfasttodreams.org askhftd

          Yeah, it’s a bit confusing. You’re wondering about the cut-off point for getting “grandfathered” in? Based on the previous Department of Education response, student loan experts, and past legislative activity/inactivity, our position is that once you’re on a repayment plan (such as IBR/PAYE/and the upcoming REPAYE), that repayment plan and terms will be “grandfathered” in for the lifetime of the loan.

          Following that logic, then in your situation, you could sign up for REPAYE (not PAYE due to your pre-2007 loans) once it’s out (December 2015?), then expect to be “grandfathered” in for the lifetime of your loan, even if REPAYE is eventually repealed. That is, once you’re on REPAYE, you should be allowed to stay on REPAYE for the lifetime of your loan.

          • Joshua Ball

            Interesting. I wonder if there is a difference between a bill being passed through Congress and what Obama did via “executive order.” I wonder if people would still be grandfather in if they are using something that was via executive order vs passed legislation. Im reading alot about how it’s just as easy to reverse an executive order as create one. All it takes is a new President in 2017 that disagrees and they can write their own executive order, no need for new legislation, that’s pretty scary. For me PAYE is the difference between renting and being a home owner. Im not sure I can be confidant enough in an “executive order” to make that decision. May have to skip out on PAYE and stick with IBR, even though by student loan keeps us from having a home. It would have been nice to see both sides of the aisle in favor of this expansion, instead of hearing how it’s a priority to rid of it already.

          • http://www.holdfasttodreams.org askhftd

            The income-based repayment plans such as IBR/PAYE/REPAYE will probably evolve and take another form in the future, whether through Congress or the President. It looks like the Republicans, if given the chance, would still retain some sort of income-based repayment plan though. In the recent white paper (Page 6 of http://edworkforce.house.gov/UploadedFiles/HEA_Whitepaper.pdf), it states their intentions of:

            “Streamlining repayment plans into two options – a standard repayment plan and a modified income-based repayment plan – will better serve taxpayers and students. The standard repayment plan will remain the same and provide borrowers with a predictable monthly payment for up to 10 years. The modified IBR plan will provide relief to struggling borrowers by capping their monthly payments at a percentage of their discretionary income.”

            We can’t predict the percentage income/cap on a Republican “modified IBR plan,” so that may still be uncertain for your issue of home ownership.

            But as mentioned in our earlier reply, once you’re on REPAYE, you should be allowed to stay on REPAYE for the remainder term of your loan. That has been the historical action of Congress, to allow existing eligible borrowers to be “grandfathered” in whenever a program/benefit in the federal aid programs has been changed/eliminated.

            It’s unfortunate that with the unpredictable nature of income-based repayment plans, many borrowers are forced take gambles on their education, career, and major life choices.