REPAYE will be Revamped and the Changes are FANTASTIC!

New IDR Terms Announced! Sorry for the delay in getting this out, Covid has put me behind a week or so.

The new IDR Plan expected out in July before the payment pause ends will not exactly be a new plan. Instead of confusing borrowers and making yet another IDR plan, the Department of Education has decided to modify the terms of the existing Repaye plan to try and simply things. While some of us are a little worried that this process would enable a future administration to change the terms back, we do feel that the steps underway will be a huge improvement for federal student loan borrowers. Also, it would be difficult for a new administration to back date substantive negative changes so while we don’t expect this to occur, it’s in the back of our minds.

The changes are underway now and a formal 30 day comment period commenced a few days ago. If the terms do not meaningfully change before implementation this summer or fall, here’s what to expect:

If married, you can file a separate tax return to exclude your spouse’s income from the calculation of household income (this is a major departure from the current Repaye);
If married, and you file a separate tax return, your spouse would no longer be considered a member of your household (this would prevent double dipping);
Forgiveness would be 20 years for undergrad and 25 years for grad loans (this is unchanged);
The poverty level deduction would be increased from 150% to 225% (a significant increase for allowed expenses to be deducted when calculating your IDR payment);
The payment would decrease to 5% of discretionary income for under grad loans (it’s presently 10% for all loans);
The payment would be 10% of discretionary income for grad loans and be a weighted average between 5% – 10% if mixed loans;
Paye will be shutting down (if you are in Paye, you may stay – and it uses a 20 year forgiveness period for all loans which may be better if you only have a short time left, or your payment would not be that much more than the new Repaye, but new enrollments in Paye will cease sometime after July 2023);
The interest subsidy will increase to 100% (in other words, if your interest is higher than your payment, rather than continuing to accrue the unpaid interest, the remaining unpaid interest will be paid by the government) (this is huge, because it will drastically limit significant interest from accruing which could otherwise create an unaffordable loan balance and a large tax bill at the end of the plan – it is effectively changing unsubsidized loans to subsidized loans).
Enrollment in the revised Repaye automatically upon 75 days delinquency (this would help prevent accidental defaults – borrowers would need to have allowed the Department to connect to the IRS website in previous enrollments however);
Allowed enrollment in Repaye even if in default (currently, if a loan is unable to be removed from default, no IDR is possible to avoid garnishment, social security offsets and negative credit); and
Many more deferment types are allowed under the new Repaye.

Here’s the press release.

We are uncertain of how Parent Plus loans will be addressed if they are not double consolidated to avoid ICR. It’s possible that the only avenue for those with Parent Plus loans will continue to be ICR – which has a substantially higher payment of 20% of discretionary income while only counting 100% of poverty level for expenses.

The stated purpose of this major amendment of Repaye is to better manage repayment, avoid delinquency and default and stop seeing balances grow to crazy levels from accumulated unpaid interest. We’re a fan!

There are some nuances here. First, and foremost, this revised Repaye is only for those with Direct Loans. If you still have FFEL loans, you should consider consolidation to Direct before May 1 for this and the one time IDR Waiver program.

If you are confused about your student loans, scheduling a 1 on 1 consultation can help you understand what to do with your student loans, just click on the link below to set that up…