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REPAYE: How One Little-Known Program Could Stop Thousands From Defaulting On Student Loans

Juan Hernandez, an aide to a Hartford City Council member, poses at his work cubicle in Hartford City Hall, Monday, March 7, 2016, in Hartford, Conn. Hernandez, 25, is among millennials nationwide with student debt who are worried about being able to qualify for a loan and come up with a down payment for a home. Connecticut and some other states are considering proposals to keep educated, young professionals within their borders for years to come by helping them with their housing costs.

CREDIT: AP/Dave Collins.

In June of 2014 President Obama issued a Presidential Memorandum ordering the Department of Education to propose new regulations to help those struggling with student debt. On October 27th, 2015, the Department of Education issued the Revised Pay As You Earn plan, or REPAYE for short, to further help those affected by extraneous student loans. To understand REPAYE we must first analyze its predecessor, the Pay As You Earn (PAYE) plan.

Pay As You Earn was passed by President Obama on December 21st, 2012 and marked the first piece of legislation to assist those with federal student debt loans while he was in office. PAYE is a federal student loan repayment program that allows approved applicants to cap their loan payments at 10 percent of their income that exceeds 150 percent of the federal poverty line. So for instance if you earn $48,000 per year and from that subtract 150 percent of the federal poverty line it would put you at $30,180 (using the current poverty line of  $11,880). Therefore, under the PAYE program your monthly loan repayment would be ten percent of your monthly discretionary income. So in the aforementioned case the individual would pay $251 per month, or 10 percent of their discretionary income.

The PAYE program also reduced the student loan term period. After the individual made their refinanced payments for twenty years, the federal government would forgive any remaining balance. While this balance would be forgiven, the sum that was forgiven would be considered income by the IRS and would be taxed accordingly. This PAYE program was very beneficial to those individuals who applied for it, but unfortunately the program was under marketed and had some shortcomings. The largest of the shortcomings, was the cutoff line of applicants who could apply. In order to be accepted into this earning driven program the individuals must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. Besides this cutoff, individuals in the program are limited to the types of federal loans. The only eligible federal loans are Direct Subsidized and Unsubsidized for undergraduates and Direct Plus for graduates and professional students. The last shortcoming of PAYE was that you had to demonstrate that you were unable to meet the payments of a standard 10 year repayment plan.

The successor to the PAYE from was the Revised Pay As You Earn program, or REPAYE for short. REPAYE fixes many of the shortcomings of PAYE, and allows millions of more individuals to become eligible for the program. REPAYE is identical to the payment structure of PAYE; loan payments are maxed at 10 percent of your discretionary income and all debt remaining after twenty years of paying back federal loans under this plan are forgiven. The differences begin with the eligibility requirements. REPAYE does not limit anyone from applying so long as you have the proper federal loans (Direct Subsidized and Unsubsidized for undergraduates and Direct Plus for graduates and professional students). The cutoff date from REPAYE’s predecessor was done away with just as the financial need requirements. REPAYE allows anyone to sign up for the program regardless of their financial situation. Unlike PAYE applicants, REPAYE applicants do not need to demonstrate that they cannot meet the standard 10 year repayment plan. Therefore, REPAYE is available to virtually anyone with federal student loans.

Another addition to the REPAYE program is the inclusion of debt forgiveness for graduate student loans. REPAYE adds the ability for a graduate student loan to be forgiven by the Federal government so long as the individual paid their loan under REPAYE for 25 years. The REPAYE program also improves upon the problem individuals had with accruing interest. Under REPAYE, the government will offer a subsidy for the first three years after college (which it already has been providing), plus it will cover half of all interest accrued on subsidized and unsubsidized federal loans.

REPAYE has opened the door for 5 million more Direct Loan borrowers and allows any individual with a Direct Loan from the Federal government to sign up for this program.

Maggie Thompson, Executive Director of Generation Progress said: “REPAYE takes some of the best pieces of other repayment programs and incorporates it into one.”

This consolidation of sorts enables REPAYE to be particularly powerful in terms of the outreach potential and the monetary relief that borrowers can see. REPAYE certainly differentiates itself by being the first federal loan repayment program that includes every single Direct Loan borrower. This large potential impact may allow REPAYE to become a crucial tool for millions of borrowers, however one thing stands in the way: awareness.

Maggie Thompson enumerated this point many times during our conversation, noting: “If more people know about this program we will see less defaults.” She also described the program as a “lifeline.” The question with awareness is a serious one, REPAYE can only be effective if Millennials, both those who are in school and those who already graduated, hear about this program. I asked Max Hessenauer, a sophomore at Boston University, if he had any knowledge of federal loan repayment plans. He, like many individuals around the United States, did not know of any repayment programs that could help him with his student debt. When I told him about REPAYE and asked, now that you know about this plan would you consider using it in the future, he responded with “I would absolutely look into the program now that I am aware of it.” While the REPAYE program only covers Direct Loans, and not all the loans an individual uses to fund college, it is a powerful tool to begin managing the debt accrued from student loans.

Earlier awareness to college aged Millennials certainly make more individuals utilize these programs when their debt payments become too large to handle. The Department of Education has been trying to increase visibility of both REPAYE and PAYE before it, however the fact still stands that too many eligible individuals are defaulting on federal loans because they are not aware that these programs exist. A report by the U.S Government Accountability Office reads: “While the Department of the Treasury estimated that 51 percent of Direct Loan borrowers were eligible for Income-Based Repayment as of September 2012, the most recent available estimate, Education data show 13 percent were participating as of September 2014”. This low visibility rate causes individuals to default rather than seek assistance. The REPAYE plan has the ability to help millions, but until the visibility is dramatically heightened, individuals will continue to default on their payments, while never knowing help existed.

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