A brand new payment option for student loan borrowers went into effect in December 2016. It does not replace or eliminate other plans like ICR, IBR, Payee or Public Service Loan Forgiveness.
While it has been suggested that REPAYE can reduce payment terms by as much as 33% from current income based plans, the capitalization of interest can make this new payment option hard to swallow and not reduce payments! REPAYE may not be right for you and before you rush into this program you should understand the pros and cons.
What Are The Pros of The REPAYE Program
• With the exception of Parent Plus loans, it doesn’t matter what type of Federal student loan you have;
• The monthly payment is 10% of your “discretionary income”;
• There is no requirement for a partial financial hardship like other income based repayment plans;
• If your payment doesn’t fully cover interest payments, you only be charged 50% of the unpaid interest during the period of time only when your payment doesn’t fully cover the interest payment;
• The payments under REPAYE count toward the Public Service Loan forgiveness program; and
• If you only borrowed for undergraduate education, you must make payments for 20 years before your loan balance is forgiven
What are the Cons of the REPAY Student Loan Program
• The most important con and one that makes this a BAD choice is that when you apply for REPAY all the interest you owe is capitalized and added to the principal amount. For example, if you owe 20,000 in student loans and 10,000 in interest, the new REPAYE loan is now $30,000. That will not happen if you are already in an income based plan and stay in that plan. Jumping ship and changing to REPAYE can have a financially devastating impact on your financial future;
• Your spouse’s income is included in calculating your monthly payment, even though your spouse may not have any student loans and even if you file a separate income tax return;
• There is no cap on your monthly payment; and
• If you borrowed for both undergraduate or professional education, you must make payments for 25 years before your loan balance is forgiven.
Is the REPAYE Program For Your Student Loans Right For You?
You should use the student loan calculators to get a rough estimate of your monthly payment after you have calculated your monthly “discretionary income”. Remember, that isn’t what you have left every month in your bank account.
Once you know the amount of your possible payment in each plan you can make a more intelligent decision. However, we recommend a more comprehensive analysis of your student loans by contacting us and scheduling a consultation so you can get a personalized road map to handle your student loans. Figure out what is right for you is not just putting numbers in a student loan calculator!
Call today at 727-828-9955 to schedule your free consultation of your student loans!