Just Say No To REPAYE

Since being introduced in October 2015 the Revised Pay As You Earn (REPAYE) income-driven repayment plan has become increasingly popular as a way to pay back federal student loans. Despite its popularity, SLPs and other professionals pursuing Public Service Loan Forgiveness (PSLF) may be better off passing it by. 

Why REPAYE Is Popular

There are virtually no requirements to qualify for it! Unlike the other income-driven repayment plans that have frustratingly confusing requirements of when your loans must've been issued and the date of your last issued loan; REPAYE can be used with any Direct Loans issued to students(that means no Parent Plus).

The benefit of qualifying for REPAYE is that your monthly payment will only be 10% of your reported monthly discretionary income. Discretionary Income (DI) is the difference between your AGI or most recent pay stub and 150% of your states poverty line. Check this out to see an example of payment calculation. 

Along with payments based on income, if you can't qualify for a specific forgiveness program such as PSLF, the REPAYE plan has forgiveness built in at 20 years for undergrad loans and 25 years for graduate loans.

REPAYE's Two Biggest Issues

There are two main reasons why REPAYE could cause issues for PSLFers. The plan does not cap payments at the amount of your original 10-year repayment plan nor does it give you the opportunity to remove your spouse's income from the equation. In certain scenarios, this can result in unfavorable consequences.

Non-capped Payments:

Everyone, when first entering loan repayment, starts off with the standard plan that requires monthly payments in the amount necessary to pay off the total balance in 10 years. Unlike all the other income-driven repayment plans REPAYE does not cap your monthly payment at what that standard 10-year payoff payment would have been, or in the case of the Income-Contingent Repayment(ICR) plan 12 years. 

This, suffice it to say, ain't on many peoples minds when setting up their plan. All that matters is the significantly lower payment and the sense of relief that comes with that. And honestly, for most people, that's fine. However, as a Speach-Language Pathologist, you start your career with an above average income and can see meaningful increases over a 10 year period. It's not uncommon to see an almost 5-10% jump after completing your CF year. What this means is, it should be on your mind!

As your income goes up and your balance goes down, your monthly payments will go up. Under one of the other plans, like Pay As You Earn(PAYE) or Income-Based Repayment(IBR), your monthly payments will not go above that original 10-year amount. REPAYE will look at that original 10-year amount, laugh, and keep climbing higher.

The inclusion of Spouses Income:

This is the same outcome, higher payments, caused by a different problem: Marriage. 

Once you tie the knot and start filing joint tax returns both your and your spouse's income become fair game for the monthly payment calculation. Now, they'll also take into account your spouse's federal loan balances as well, but if your new person has little or no loans this can result in skyrocketing payments.

Fear not my fellow adventure, there is a work around. If you file your tax return as "Married but Separate" you can remove your spouse's income from the equation. This can cause other complications because it's generally a less favorable way to file taxes, talk to a trusted CPA, but at least you have the option. However, it's an option you lose by making payments under the REPAYE plan. No matter how you file taxes, REPAYE will always use your life long love's(I'm a hopeful romantic) income in the equation.

Example

Let's imagine a recent graduate just entering the work force. This professional has $75,000(4.5% interest rate) in student loans and is taking a job at a hospital with the hopes of using PSLF as part of their repayment strategy. Here's how the next 10 years of repayment would play out as they see their income rise and get married in year 5:

Year Income Spouse's Income Discretionary Income(DI) Standard 10yr Repayment(Yearly) REPAYE(Yearly)* IBR(Yearly)**
1 $ 57,000
$ 33,210 $ 7,517 $ 3,321 $ 4,981.50
2 $ 59,850
$ 35,775 $ 7,517 $ 3,578 $ 5,366.25
3 $ 61,047
$ 36,852 $ 7,517 $ 3,685 $ 5,527.85
4 $ 62,268
$ 37,951 $ 7,517 $ 3,795 $ 5,692.67
5 $ 63,513 $ 60,000 $ 86,802 $ 7,517 $ 8,680 $ 7,517.00
6 $ 64,784 $ 61,200 $ 89,025 $ 7,517 $ 8,903 $ 7,517.00
7 $ 66,079 $ 62,424 $ 91,293 $ 7,517 $ 9,129 $ 7,517.00
8 $ 67,401 $ 63,672 $ 93,606 $ 7,517 $ 9,361 $ 7,517.00
9 $ 68,749 $ 64,946 $ 95,965 $ 7,517 $ 9,597 $ 7,517.00
10 $ 70,124 $ 66,245 $ 98,372 $ 7,517 $ 9,837 $ 7,517.00










Total Cost $ 75,170 $ 69,885 $ 66,670.27
*10% of DI





**15% of DI





This chart is hypothetical information and meant for illustrative purposes only. 

The issue dates on this particular professionals loans limits their income-driven plan choices down to two: REPAYE(10% of DI) or the old IBR(15% of DI). Since REPAYE is only 10% of DI it offers a significantly lower payment to start. However, if you play it out for all 10 years, IBR saves this professional the most money even though it started with a higher payment. Why? IBR caps payments at what the original 10-year repayment plan was and you can see this effect in year 5 when the spouse's income becomes included. Note that this does not include the possible benefits of filing taxes as married but separate.

Potential Solutions

For those of you already started on the REPAYE plan it is possible to switch it up. That said, as you've probably already guessed, doing that has its own specific consequences. Switching repayment plans can result in your unpaid interest being capitalized. That means the unpaid interest gets tacked onto your principal, which in turn, means interest charges on that new amount plus potentially higher monthly payments. 

On the plus side, it does not reset PSLF payments! If that's your chosen quest you'd still be in the game. Due to this, it can actually make sense in unique situations to start in REPAYE and then later switch, but as we discussed it requires careful consideration of multiple variables.

In sum, you should build a personal student loan repayment strategy so all options can be considered. If it sounds appealing to have a partner in that pursuit, then we should talk.

Note: I'll be at ASHA 2017! I'd love for you to visit me at booth 1462 and ask me your student loan questions.