By Robert Stitt
As of December 17, 2015, everyone who has a Direct student loan can enter into a new repayment agreement, REPAYE, that has limits set at 10 percent of discretionary income. It does not matter when you took out your student loans or how much you borrowed. The plan will not be perfect for everybody, but for borrowers who are having a hard time making their payments, or simply have not been able to, this may be a true gift.
As with any government program, things are not always as clear as they should be. Black Enterprise provides a basic primer on the new repayment system that is summarized below.
- All Direct student loans that are not in default are eligible for the REPAYE program. FFEL, Perkins, and other federal loans must first be consolidated into a Direct loan before they would be eligible.
- Discretionary income is calculated by taking your pre-tax income and subtracting 150 percent of the poverty level for your family size. You may find that your repayment amount is $0 if your income is low enough.
- The U.S. Department of Education has a repayment calculator available online which can help you estimate your monthly payment in the REPAYE system as well as other plans.
- Payments will be made for 20 years for undergrad loans and 25 for loans applied to grad school. After this time, the remaining balance will be forgiven, but the forgiven amount will be taxed as earned income.
- Certain government and nonprofit jobs may be eligible for forgiveness after just 10 years of payments.
- To qualify, apply at StudentLoans.gov and go to the “Income-Driven Repayment Plan Request”. There is no fee to apply and no penalty if you choose not to select this repayment option. Federal loan repayment plans can be changed at any time.
The Institute for College Access & Success put together a pdf that explains the five main repayment plans for students with financial hardship. The chart breaks down eligibility, payments, and loan forgiveness. It can be found at http://ticas.org/sites/default/files/pub_files/existing_idr_options.pdf
The REPAYE plan is a start to a better system. There are still a number of improvements that need to be made, however. For example, all federal loans should be repaid under an income-driven system, and the forgiven amount should not be counted as taxable income. For now, this is great news for a lot of Direct student loan borrowers who have been struggling to make their payments.