Compare PAYE Vs REPAYE: Which is better? Learn how PAYE vs REPAYE benefits you in Student Loans, check eligibility and requirements, and how to decide which one to use: Paye or Repaye? Does paye vs repaye for doctors and married couple also works?
Understanding the differences between PAYE Vs REPAYE can help you save a lot of money on student loans. Both PAYE (Pay As You Earn) and REPAYE (Revised Pay As You Earn) are likely to cap your payments to at least 10% of the monthly income. The main difference is that you can still use REPAYE, provided your monthly income is more than the typical ten-year plan.
Also, you should know that due to the COVID-19, there have been changes to the federal student loan program. Now, borrowers can suspend payments until 31st August 2022 without any penalty.
Understanding Key Differences Between PAYE Vs REPAYE in 2022
The PAYE term is around 20 years for both undergrad and graduate students. So if you are on this plan for 20 years, all the loans would be forgiven, and would tax the remaining balance.
On the flip side, when you choose REPAYE, the term is 20 years only for undergraduate loans. However, if you have any loans from the graduate school, your time of repayment would be 25 years which will therefore apply to all the loans including the undergraduate loans. It is a vital point you must consider because the five years can be pretty costly.
|Basis Of Difference||PAYE||REPAYE|
|Must Have Requirements||Individuals who have received a federal loan either or after 1st October 2007 and have no outstanding federal loans are eligible.||Individuals qualifying for the federal loan are eligible.|
|Counting of Spouse Income||Does not count if taxes are filed separately.||It is counted, despite of filing taxes separately.|
|Period of Repayment||20 Years||20 Years: In the case of undergraduate loans
25 Years: In the case of any other loans
|Payment Amount||10% of discretionary income||10% of discretionary income without any cap.|
|Marriage||If filed separately, the monthly payment is based on your income and the federal loans.||Your tax filing status does not matter. Your required payments are based on the couple’s combined incomes and Federal debt levels.|
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What Is PAYE? What are the benefits of PAYE in Student Loans?
The PAYE program is a part of President Barack Obama’s first student debt relief. The goal is to extend protections to federal student loan borrowers who struggle with monthly payments. It includes four types of four kinds of federal student loans: Subsidized Direct Loans, Unsubsidized Direct Loans, Direct PLUS Loans for Students, and Direct Consolidation Loans.
Top 3 Benefits Of PAYE As A Student Loan
- It has low monthly payments compared to standard payments. Payments will be lower when you have a less discretionary income-interest subsidy for the first three years
- The government will pay the remaining interest for three years if your monthly payment does not cover the monthly interest on the subsidized loans
- It can help you avoid default which would harm your credit score
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What Is REPAYE? What Are The Benefits Of REPAYE In Student Loan?
Launched in 2015, REPAYE is a type of federal student loan program which is designed to help borrowers maintain cost-effective monthly student loan payments. Like PAYE, REPAYE also has many benefits.
Top 3 Benefits Of REPAYE In Student Loan
- If the borrower’s payment does not cover the monthly interest that accrues on loan, the government will waive the unpaid interest on the subsidized loan
- Like PAYE, in the case of REPAYE, you will also be given forgiveness after 20 years of repayment. However, if you have any graduate school loans, this term will be stretched to 25 years term after qualifying for the payment
- The best thing about REPAYE is that you can be eligible for this plan even if your amount of payment is larger than what it would be in a standard plan
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How To Choose PAYE Vs REPAYE For Student Loans?
When choosing REPAYE vs. PAYE, one needs to consider these 3 factors:
- Ensure The IDR Fits You
- Run The Numbers
- Foriven Loans
1. Ensure The IDR Fits You
Private student loans do not fit into the income-driven repayment (IDR) plans like REPAYE and PAYE. There are several reasons to choose REPAYE or PAYE, especially when you cannot afford payments on the standard ten-year repayment plan while having public service loan forgiveness.
In either of these scenarios, your goal is to have the minimum possible monthly payment. You can save interest and pay off the debt quickly if you opt for a standard plan.
2. Run The Numbers
You can utilize Federal Student Aid’s Loan Simulator tool to calculate the PAYE Vs REPAYE monthly payments for the student loans. Knowing clear details about the interest costs and other payment information may help you make a choice between the two.
3. Forgiven Loans
In the case of both PAYE and REPAYE, if you fail to repay the payment within the term of 20 years or 25 years, the rest of the payment is forgiven. In this case, also you get to have the lowest monthly payment, which increases the chance of a larger amount being forgiven. Nonetheless, this magnifies your future tax burden as the forgiven payment is taxed after the repayment term is ended.
How To Check Eligibility And Requirements: REPAYE Vs. PAYE?
The PAYE and REPAYE are two of the income-driven repayment plans offered by the US Department of Education. Below is the eligibility and requirements criteria for REPAYE Vs PAYE
Eligibility Criteria for REPAYE
If you have borrowed from the Direct Loan program except for the Parent Plus Loans, you are eligible for REPAYE. You need to have a consolidated Stafford to make them eligible for the loan.
Eligibility Criteria for PAYE
The eligibility requirements for a PAYE loan include holding the correct loan type. In addition, you need to consider a new borrower and must have some monthly payments. All Parent PLUS loans are ineligible.
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PAYE or REPAYE: Which Is Better For A Student Loan?
PAYE and REPAYE are pretty similar. Choosing between them can be challenging for loan borrowers. Generally, REPAYE plans are pretty flexible as compared to PAYE plans. PAYE might not be an option for you because your capped monthly payment would exceed your payment under ten years plan and repayment plan if you have a higher income. Also, REPAYE gives you some flexibility in extending the repayment term if needed.
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How To Switch From REPAYE to PAYE?
It is easy to change the repayment plans for these federal student loans, and it is possible to switch between the plans. In case of any change from REPAYE to PAYE, one will need to contact the loan services.
Switching from REPAYE to PAYE majorly benefits the borrowers who will certainly receive raises. One can take advantage of the 10-year standard repayment plan payment cap available at PAYE. This plan helps in lowering the loan amount, including the interest costs.
PAYE Vs REPAYE Calculator
Federal Student Aid’s Loan Simulator tool will give you each plan’s total interest cost and loan forgiveness potential. We need to compare the monthly payment amounts under each repayment plan and choose the one that offers a minimum repayment plan. To calculate the maths for these student loan plans, you need to provide the following details:
- The student loan types
- Interest rates
- Marital status and the tax filing status
- Combined income
If you are interested in income-driven repayment for student loans, PAYE and REPAYE are great options. You just need to ensure that you understand you could end up paying a considerable amount of interest if you stretch out the loan repayment term, and you could increase your tax burden after that term ends. It would be best if you compare all of the repayment options, like the total cost of repayment and affordability of monthly payments, to determine which payment plan works the best for you.