Authored by: Justine Lara Konicki
On October 27, 2015, the Department of Education released its regulations for the new Revised Pay As You Earn student loan repayment plan (“REPAYE”). More information and the regulations can be found on the U.S. Department of Education’s website here. Unlike the Pay As You Earn plan (“PAYE”) unveiled by the Obama Administration in 2011, the REPAYE payment plan applies to all borrowers, regardless of when the student began borrowing. REPAYE adds to the government’s offering of repayment plans and does not replace any of the following: (1) Standard; (2) Graduated; (3) Extended; (4) Income-Sensitive (ISR); (5) Income-Contingent (ICR); (6) Income-Based (IBR); and (7) Pay As You Earn.
Key points borrowers should be aware of for the REPAYE program are as follows:
- REPAYE is a payment plan open to all borrowers;
- Borrowers repaying their loans under REPAYE are eligible for Public Service Loan Forgiveness;
- A student does not have to demonstrate a partial financial hardship to enroll in the plan;
- Loan payments under REPAYE are capped as 10% of “Discretionary Income.” Discretionary income” is the difference between the borrower’s income and 150% of the poverty guideline for their family size and their state of residence;
- A borrower’s spouse’s income will be included in calculating the monthly payment amounts. This is true even if you file separate tax returns. This rule departs from other payment programs, including ICR and IBR, which allow married borrowers to file separately and not have their spouse’s income included when setting the monthly payment amount;
- The plan does not cap borrowers’ monthly payments;
- If borrowers’ payments do not cover interest charges (what is called period of negative amortization), borrowers will only be charged fifty percent of the unpaid interest;
- Borrowers are eligible to have their debt forgiven after 20 years of repayment if the funds were borrowed for undergraduate studies. If borrowers took out any loans for their graduate or professional education then they are only eligible for forgiveness after 25 years of repayment. This cancelation of debt; however, has tax consequences, and borrowers should be aware of the tax consequences.
REPAYE is targeted to help the neediest of borrowers and can provide additional relief to borrowers who are struggling in making payments; however, IBR or ICR may still be the best option, especially for some married borrowers. There continue to be a number of ways to manage student loan repayments and KJK has the knowledge and resources to assist borrowers in navigating the complicated regulatory structure of repaying student loans.
Justine Lara Konicki is a litigation Associate at Kohrman Jackson & Krantz LLP. Justine is also a member of the Cleveland Metropolitan Bar Association’s Law School Debt Task Force. She can be reached at 216-736-7211 or jlk@kjk.com.