PAYE vs REPAYE for Student Loans

Student loan repayment is an important phase for every borrower. For those interested in income-driven repayment plans Paye and Repaye are great options as they work based on your discretionary income. Learn more about Paye and Repaye and find the option best suited for you.

Updated by Annany Sah on 16th June 2020

Both Paye and Repaye is an income driven repayment program just the main difference which separates both of them from each other is that Paye depends only on the federal loans and repaye is most associated with private loans.The income Driven Repayment plan helps the person to repay the principal amount  by capping 10% of his discretionary income of the person and it increases with the increase in income and the family size.

In Paye the amount is forgiven after 20 years of payment, whereas the Repaye the amount is made into monthly payment and it increase or decrease according to the rise or fall in the income.

Table of content


Paye vs Repaye


Both the Revised Pay as you earn and pay as you earn are the same because they are part of the same income-driven repayment plans one of them cap about 10% of the discretionary income to pay off the interest amount whereas the other does actually raises the monthly payment as the income increases and that the reason the person is able to get close to forgiven payment.

In these income-driven payments both of them differ from each other in some cases like in to qualify you to have to show some financial distress or 10 years of a financial plan, whereas to qualify for repair you don’t have to any kind of financial plan. The Repaye Factor depends upon the income and your family size and it increases.


A brief history of Paye and Repair 

This pay plan was first introduced by President Barack Obama in October 2012. This is introduced to release the hardships of borrowers taking student loans. Repayments of only 10 % of the discretionary income were to be paid and also after consecutive payments for 20 years you are eligible for a loan forgiveness program.

This program includes -

Direct Loans
Subsidized and unsubsidized
Graduate PLUS loans
Direct Consolidation Loans

PAYE included many qualification standards to be met, which is difficult to pass, therefore a new program was introduced called REPAYE . While PAYE was limited to students who applied for it after Oct. 1, 2007. Repaye you would qualify regardless of the time you took the loan. Forgiveness is offered after 20 years of consecutive payments and if you have opted for Grad PLUS loans, it goes up to 25 years.

This helped many students qualify for income-driven repayment plan. If you are able to show that your facing partial financial hardship, it offers low monthly repayments, based on your income and residency.


What is Paye?

The Paye (Pay-as-you-Earn) is a repayment plan which withholds or deducts the payment for the loan interest from the payment. The deducted amount is also refundable if the amount exceeds the the interest amount.

It was introduced by the US President Barack Obama on October,2011 and back then it was commonly known as the obama student loan repayment,it’s considered most suitable for married couples because they both can have an income.

What does Paye actually do?

The pay as you earn was introduced by Sir Paul Chambers in 1944. Many countries uses this repayment plan to sort out loans and revenues from the employee paycheck. In the plan the amount is deducted from the paycheck by the employer and is sent to the government. If any excess amount is deducted from the paycheck it is reverted back to the taxpayer and is the amount is less than the requested amount then the taxpayer has to pay it at the end of the term.

Paye for student loan debts 

 It's the best option for a student who has a loan debt and earn very less to meet the minimum requirements of the payment, the Pay as you earn plan helps analyse the amount of income earned by the student and then cap about 10% of the discretionary income to pay off the interest amount and after the 20 years of payment the due amount is forgiven.

IBR (Income-Balance Repayment)

In this the amount you pay will for 10 years it will be capped for the repayment of  the loan the person took and it will be deducted from your discretionary income, This plan depends upon the income you are earning and what’s your family size is,Under this plan your monthly payments are converted into the income you generate.

ICR (Income Contingent Repayment)

In this plan the interest loan amount is deducted from the discretionary Income of the employee  and it is adjusted from next year payment.ICR is the only plan which also accept Parent PLUS loan, no other repayment plan accepts Parent PLUS loans.
How does Paye Works?

The Paye (pay as you earn) gives the opportunity to the federal student loan to pay off debts at a very reasonable rate by capping about 10% of the discretionary income of the individual. The interest rate is chosen on what you are earning right now not what you owe.

What is Repaye?

The Repaye (Revised-Pay-as-you-Earn) is a plan which cap about 10% of the discretionary income of a person and pays off the interest loan amount with it and it also forgives the rest of the amount if the person has paid about 20 years of repayment.

It was a golden door for millions of students because in Paye there were many restrictions about the loan taken by the student and it was limited only toWilliam D Ford Direct loan, It also included Direct loans, Subsidised loan and unsubsidized loans.

What a Repaye Does?

Its an income driven repayment which cap about 10% of your discretionary income to pay off you interest amount and change the interest amount monthly like the amount increases with an increase with your income and decrease if you are having a baby or any financial crisis.

In normal loans the interest just accumulate and capitalize on your amount but Repaye is the only income driven repayment plan which help you pay off your interest amount which differ for graduates is 25 year term payments and forundergraduates is 20 year term.

Student loan forgiveness for PAYE and Repaye

PAYE and REPAYE help in decreasing monthly repayments. Forgiveness program is offered to borrowers of a specific profession like working in government organizations, teachers, nurses, and lawyers whose student rates are higher leaving them with very little money to spend.


What to check before applying for forgiveness loan.

1. Consider going to a trustworthy operator to guide you with the process to apply. You are not charged any fees for enrolling to income-driven repayment that helps you get loan forgiveness.
2. For the disabled and public servants, forgiveness program is being granted tax-free. If you are in an income-driven repayment program, and later qualify for forgiveness remember it is taxable.
3. If you decide to drop the IDR plan, considering the no tax benefits, unpaid interest will be added to your loan balance.

Deciding to apply for PAYE or REPAYE

Consider the following. 

1. Check which loan repayment option is more feasible for you.
2. Check the eligibility criteria without which applying for a loan will be rejected.
3. Contact loan servicer to apply for an income-driven repayment plan
4. Make payments on time so you can apply for loan forgiveness and other benefits offered.
5. Once applied for an income-driven repayment plan new monthly payments are to be made.
6. Renew your income annually.


Repaye is a better option than Paye

The Pay-as-you-Earn was introduced in 2011 by president obama but it had flaws in it because it was limited to William D Ford Direct Loans, Subsidised and Unsubsidised loans,Grad PLUS, Direct Consolidated loans, it was meant for only a single person with the hopes of getting a high paying job in the future.

The obama government after 4 years unveiled another plan called Revised-Pay-as-you-Earn which was a millions of students because it wasn’t limited by the direct loans or any types of loans, what it did was it witholded 10% of a person’s discretionary income to pay off the interest amount and had a forgiveness for the due payment after the person had done about 20-25 years of payment.

Eligibility criteria for Repaye

  1. Direct Loans

  2. Consolidated loans.

  3. If you have Parent PLUS loan you cannot be eligible for Repaye.

Advantages of Repaye

  1. Repaye pays more benefits.

  2. This can help prevent your loan balance from ballooning and limit the total cost of your loans.

  3. It helps you to pay the loan by paying about 50% of the interest after the first 3 years.

Disadvantages of Repaye

  1. The Married filing separately loophole closed

  2. The pay cap is gone.

Learn more about student loan repaymnet options

Points to consider if you are switching from Paye to Repaye 

  1. Monthly Repayment: If you are having trouble in the payment than Repaye can help in lowering the payment rate.

  2. Income Based Repayment: It is used so as to reach as many as borrower which is based on the income of the individual.

  3. Public Service Loan Forgiveness: Repaye is eligible for PSLF(Public Service Loan Forgiveness) because it happens when  a person has successfully done 120 consecutive payments the rest amount is forgiven


Actually both Paye and Repaye have their own specialty because they both are made for a separate purpose altogether one is used for a single individual and the other is used for two people most likely for couples or people having a two way income process. So in my  opinion both are separately equal in this case and you can choose either one of them and according to the situation you can choose where Paye eligible loans are Direct subsidised and unsubsidised and Graduate Plus Loans whereas Repaye Eligible loans are Direct consolidate, Direct loans.   student loans are a great way to tackle the rise in tuition costs, it is advised to first exhaust yourself of all your federal student loan options before you explore private student loans.