A Side-by-Side Comparison of 3 Income-Based Repayment Plans

Betsy Mayotte

About six months ago, the Student Loan Ranger told you that the Department of Education was working on rules for a new income-driven repayment plan called Revised Pay As You Earn, or REPAYE.

The new plan, for which the department recently released the final regulations, would expand the pool of federal student loan borrowers who would be eligible to have their monthly payments capped at 10 percent of their discretionary income and, for some borrowers, reduce the number of years needed before forgiveness would kick in.

The final version of the rules is very similar to the draft version, so we thought it might be beneficial to offer a table comparing the three most similar income-driven plans, income-based repayment, Pay As You Earn and the new REPAYE, side by side.

[Get tips and advice on paying for college.]

IBR

PAYE

REPAYE

Eligible loans

-- All Federal Family Education Loan Program, Stafford and graduate PLUS loans


-- All Stafford and graduate PLUS loans


-- All FFELP and direct loan consolidation loans that do not contain Parent PLUS Loans


-- All Stafford loans or Graduate PLUS loans disbursed on or after Oct. 1, 2011


-- Consolidation loans made on or after Oct. 1, 2011, unless they contain a direct loan or FFEL loan made before Oct.1, 2007 or a Parent PLUS loan


-- Direct loan borrowers with no loans made prior to Oct. 1, 2007 who also had a disbursement made on or after Oct. 1, 2011

-- Any Stafford or graduate PLUS loan

-- Any direct loan consolidation loan that does not contain a Parent PLUS loan

Borrower eligibility

-- Payments under a 10-year term must be higher than what they would be under IBR

-- Payments under a 10-year term must be higher than what they would be under PAYE

-- No payment amount limit


Monthly payment

-- Maximum is what the payment would be under a 10-year term


-- Payment is 15 percent of discretionary income

-- Maximum payment is what the payment would be under a 10-year term


-- Payment is 10 percent of discretionary income

-- No maximum payment


-- Payment is 10 percent of discretionary income

Married borrowers

-- If filing joint tax returns, both borrowers' income and eligible debt is considered


-- If filing separate tax returns, only the applicant's income and eligible debt is considered

-- If filing joint tax returns, both borrowers' income and eligible debt is considered


-- If filing separate tax returns, only the applicant's income and eligible debt is considered

-- Both spouses' income and federal student loan debt, if applicable, is considered regardless of filing status


-- Exceptions exist for victims of domestic violence or if the borrower is separated from their spouse

Interest capitalization

-- Occurs when the calculated payment is equal to or greater than what it would be under a 10-year term and/or when the borrower leaves the IBR plan

-- Occurs when the calculated payment is equal to or greater than what it would be under a 10-year term and/or when the borrower leaves the PAYE plan

-- As there is no maximum payment, interest will only capitalize if the borrower leaves REPAYE

Forgiveness

-- Any remaining balance after 25 years of eligible payments is forgiven and taxed as income. Only payments made on or after July 1, 2009 are eligible

-- Any remaining balance after 20 years of eligible payments is forgiven and taxed as income. Only payments made on or after July 1, 2009 are eligible

-- Borrowers with undergraduate loans only will receive forgiveness after 20 years of eligible payments


-- Those with graduate loans will receive forgiveness after 25 years of eligible payments


-- Forgiven amount will be taxed as income

[Understand four types of income-driven student loan repayment plans.]

Plan Similarities

While these income-driven options have the differences detailed above, these plans also share some similarities:

-- With each of these plans, discretionary income is the adjusted gross income minus 150 percent of the state poverty level for the borrower's family size.

-- Loans cannot be in default.

-- Minimum monthly payments can be as low as $0 per month .

-- If payment does not satisfy monthly accrued interest, the Department of Education pays the remainder for most subsidized Stafford loans for up to three years. For REPAYE only, the agency also will pay 50 percent of unpaid interest on unsubsidized loans and subsidized loans after the three-year period.

[Follow steps to stay on top of an income-driven repayment plan.]

Also, just like with IBR and PAYE, payments made under REPAYE count toward Public Service Loan Forgiveness. Note, however, that if your loans are currently under the FFEL program, you will need to consolidate them into the direct loan program to gain access to REPAYE.

If you do this, any eligible payments you've made prior will not count toward any type of forgiveness -- so if you're already a few years into your 10 years of needed payments for PSLF, it might not be worth the switch.

Betsy Mayotte, director of regulatory compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, is a frequent contributor to ASA's SALT Blog; responds to public inquiries via the advice resource "Just Ask;" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.