For many college graduates dealing with student loan debt, the early days of budgeting loan payments on top other costs of living can be difficult. Finding where rent, food and other discretionary expenses fit into their finances often means that recent grads are skipping their loans, which can often lead to snowballing that impacts both credit and future finances.
In order to help better adapt to this difficulty, the federal loans (and many private loan companies) offer students a variety of loan repayment programs. One common type, income-based repayment, helps grads by capping their loan payment amounts at 15 percent of their discretionary income (based on the difference between adjusted gross income and 150 percent of the poverty guideline for family size and state of residence).
While these types of programs provide a payment amount that is lower than a standard 10-year repayment plan, income-based repayment plans lead to paying more than the original loan amount due to the accrued interest over time.
A new program called Revised Pay As You Earn, or REPAYE, looks to offset some of these drawbacks by capping monthly student loan payment amount at 10 percent of a borrower’s monthly discretionary income. Further, the plan will forgive remaining debt after 20 years for those who borrowed only for undergraduate study and 25 years for those who borrowed for graduate study. This will help with the extended amounts of accrued interest that borrowers pay under other income-based repayment plans.
Another benefit for borrowers under REPAYE further addresses accrued interest by giving a new subsidy benefit to prevent ballooning loan balances for those whose income-driven payments cannot keep up with accruing interest.
The new program goes into effect in mid-December, 2015. For more information on the REPAYE program and how to enroll, please visit the U.S. Department of Education’s website