The Revised Pay as You Earn (REPAYE) plan is an income-driven repayment plan for federal student loans. For borrowers struggling with loan repayment, it’s arguably one of the best options for relief.
The Benefits of REPAYE
If you’re unfamiliar with REPAYE, the following are a few of the most important ways the plan benefits borrowers:
- Monthly payments are capped at 10 percent of a borrower’s discretionary income
- An interest subsidy helps to prevent student loan balances from ballooning out of control
- After 20 to 25 years, depending on whether the loans were used for undergraduate or graduate study, any outstanding balance is forgiven
To learn more about REPAYE and the benefits the plan offers, read our Complete Guide to REPAYE.
Getting Started With This Spreadsheet
This spreadsheet will help you estimate the following:
- How much you’ll owe each month over the life of your loan as well as how much of each payment will be applied to principal and interest
- How much you’ll pay in total
- What amount, if any, will be forgiven after 20 or 25 years of qualifying payments
The important thing to note is that these are all estimates. And the reason for this is that REPAYE payments are determined by several inputs that are likely to change. One is your income. The other is the poverty threshold set by the federal government each year. On a 20 or 25 year timeline, both are likely to vary quite a bit. We’ll discuss this in more detail in just a bit.
Entering Your Loan Info
To get started, enter how much you owe and the interest rate on your loan.
In the Loan Type section, indicate whether your loans were taken out to complete undergraduate or graduate studies. Your answer to this question is used to determine when you’ll be eligible for loan forgiveness, if applicable. Undergraduate borrowers become eligible for loan forgiveness after 20 years of qualifying payments, while graduate borrowers become eligible after 25 years.
Next, indicate whether your loans are subsidized or unsubsidized. The choice you select will be used to calculate the interest subsidy applied to your loans, if applicable, for the first three years of enrollment in REPAYE. For borrowers with subsidized loans, the federal government will pay all unpaid interest for the first three years of enrollment, after which they will continue to pay half of any unpaid interest. With unsubsidized loans, the interest subsidy is always equal to half of all unpaid interest.
To learn more about how the REPAYE interest subsidy works read the Complete Guide to REPAYE.
Finally, enter the date when you expect to begin repayment.
Understanding How Your Payment is Calculated
To calculate your monthly payment, we’ll need to make a few assumptions.
Under REPAYE, your monthly payment is equal to 10 percent of your discretionary income. Your discretionary income is equal to your adjusted gross income minus 150% of the poverty threshold for your state and household size.
The problem is (1.) you likely can’t say for sure what your income will be for each year during your repayment term and (2.) the federal government only publishes poverty guidelines for the current year.
So, we’ll need to estimate both your income and the federal poverty guidelines for your state and household size for each year during your repayment term.
Estimating Your Income
To estimate your income, enter your salary for year one and indicate how much you expect your income to grow on an annual basis moving forward.
Estimating the Poverty Threshold
Estimates of the poverty threshold for all states and household sizes are built in. The rate will be adjusted for your household size and state of residence based on your input.
We assume that the poverty threshold will grow at an average rate of 3% per year for all household sizes and states each year after 2016. The poverty guidelines for 2016 can be found on the Department of Health and Human Services web site.
If you are interested in learning more about how the poverty guidelines are used to calculate discretionary income, you can review this post.
Understanding the Amortization Table
The amortization table makes it easy to visualize what your REPAYE repayment schedule might look like.
It shows the date of each payment (Column C) along with the estimated payment amount (Column D).
Columns F - I deal with interest and show how much of it, if any, is accumulating:
- Interest (Column F): This is the total interest accrued during the previous period.
- Paid Interest (Column G): This is the total interest, if any, covered by the monthly payment.
- Unpaid Interest (Column H): This is the amount of interest, if any, that remains unpaid after the monthly payment is applied.
- Interest Subsidy (Column I): This is the amount of interest, if any, that is subsidized by the federal government.
- Accumulated Interest (Column J): This is the amount of interest, if any, that remains after your payment as well as the federal government subsidy, if applicable, are applied. While Accumulated Interest is not capitalized (added to the balance and subject to future interest calculations), it is your responsibility and, as such, it is summed into the total remaining in the Balance column (Column L) in the year that your loans are eligible for forgiveness.
AMORTIZATION TABLE PREVIEW:
Understanding Loan Forgiveness
If you have an outstanding balance after 20 or 25 years of qualifying payments, depending on your loan type, you will be eligible for loan forgiveness. After you enter your loan details, you’ll see that the total estimated amount eligible for forgiveness is shown at the bottom of the Loan Repayment Summary Table.
Under current regulations, any student loan debt that is forgiven is treated as taxable income. Notably, this may change on a 20 to 25 year timeline.
Again, it’s important to remember that the totals shown as eligible for forgiveness are only estimates as they’re based on approximations of your income and the federal poverty threshold.DOWNLOAD THE EXCEL-BASED REPAYE CALCULATOR AND AMORTIZATION TABLE