Don’t Miss This 2023 REPAYE Update
What changes are coming to the REPAYE program for student loans in 2023? Learn how to prepare, maximize your benefits, and save thousands on student loans.
Right now, millions of Americans are holding their breath as Supreme Court justices debate the legality of Biden’s loan cancellation program.
Are you one of them?
If so, have you heard about the huge update coming to the REPAYE program for student loans this year?
REPAYE (Revised Pay As You Earn) is a popular federal income-based repayment program with low monthly payments.
Under this plan, after 20 years of total payments your remaining balance is forgiven…
And this year, the Education Department will be revising REPAYE to make it even more appealing!
It’s a major overhaul that borrowers will be excited about, especially those pursuing forgiveness.
It could easily save those with serious student loan debt more than $10K, or even $20K.
Plus, REPAYE is one of many student loan relief programs that are here to stay. But, most people haven’t heard of these alternatives.
In this article, I’ll cover changes coming to the REPAYE program and some exciting benefits it includes:
Millions of Americans await the Supreme Court's decision on the legality of Biden's loan cancellation program. Meanwhile, the REPAYE program will have major updates coming this year, potentially saving borrowers MORE than $10K-$20K.
What is the REPAYE program update?
Last August, Biden announced several changes to the student loan system.
One proposal was a new income-driven repayment (IDR) plan.
At first, I thought they were going to complicate things further by adding another plan to the IDR mix bag.
(There are already four income-based repayment plans… and they’re not easy to navigate.)
Turns out, they’re modifying the existing Revised Pay As You Earn (REPAYE) program.
The administration's goal is to simplify borrowers’ repayment options so they can choose between one or two plans.
Hallelujah!
The Biden administration is making it easier for student loan borrowers to repay their loans by modifying the REPAYE program. Borrowers will have the option to choose between one or two repayment plans.
How will the REPAYE program update work?
The REPAYE program update will happen in 2 phases.
First, they’re making the new REPAYE terms so good that borrowers will be highly incentivized to choose this plan over others.
To quote Lord of the Rings, they’re making this REPAYE plan “the one to rule them all.”
Next, they’ll guide new borrowers into REPAYE and phase out the old program - Pay As You Earn (PAYE).
There is ONE exception to this:
If you’re currently on PAYE, you can choose to stay if it benefits you more. But, if you leave the PAYE program, you can’t rejoin after July 2023.
For most, this modified REPAYE program will be a welcome upgrade.
You’ll be able to:
File taxes separately if you’re married, so you can exclude your spouse’s income.
Take a larger income deduction when calculating your payment (225% of the federal poverty line instead of 150%).
Have 0% interest if your calculated payment is less than the interest that accrues each month.
Pay as little as 5% of your income for undergrad-only borrowers; 10% of your income for grad-only and Parent Plus borrowers; a weighted average if you have multiple types.
Under the proposed REPAYE update, you can file taxes separately, take a larger income deduction, have 0% interest, and pay as little as 5% of your income. It's a welcome upgrade for most borrowers!
What are the benefits of the 2023 REPAYE program?
The benefits of this updated REPAYE program could be huge.
For example, if you file your taxes separately, along with the higher income deduction, you can drastically cut your monthly payments.
Plus, since interest won’t accumulate if your payment is lower than the interest growth, your loan won’t balloon as a traditional loan would!
There is one caveat that may affect older borrowers.
Those with Parent PLUS loans will still only be able to choose the Income-Contingent Repayment (ICR) plan, and only after consolidating their loans first… unless they use the double loan consolidation loophole.
Unfortunately, ICR is the worst [income-driven] plant out there, so it’s worth exploring double loan consolidation to access the new REPAYE program.
These savings can free your cash flow to support other financial goals. My clients like to use their savings to
Build a retirement nest egg
Grow their investments
Pay off other debts, like a mortgage or medical bills
Support their kids or other family members
Take more vacations
Older borrowers can use the updated REPAYE plan to free their cash flow and support their other financial goals, like spending more time with their families.
Can I choose REPAYE if I have Parent PLUS loans?
If you have Parent PLUS loans, the double loan consolidation loophole is an elegant solution.
This strategy requires at least 4 Parent PLUS loans (or a mix with other federal loans) that are consolidated in two batches.
Basically, if your loans are consolidated twice, they’re no longer considered Parent PLUS loans. This makes them eligible for appealing repayment plans and student loan forgiveness!
If you have Parent PLUS loans, it’s the only way to access this upgraded REPAYE program.
If you have Parent PLUS loans, there are still ways to access the 2023 REPAYE program update. If you have 4 or more Parent PLUS loans, you can use the double loan consolidation loophole to qualify.
Key Takeaways
Things may change again, and I’ll keep my eye on this REPAYE program update. Here’s what we know now:
The REPAYE program is updating this July to make it more accessible and appealing, potentially saving borrowers over $10K.
The goal is to simplify repayment options by modifying the existing REPAYE plan.
Borrowers will be incentivized to choose the updated REPAYE plan over others.
The updated REPAYE plan will allow married borrowers to file taxes separately, take larger income deductions, and pay as little as 5% of their income for undergrad loans.
Parent PLUS loan borrowers may access the updated REPAYE plan by using the double loan consolidation loophole.
If you don’t know about the double loan consolidation loophole, schedule a call with me to learn more, or send me an email.
You can also join my newsletter to be kept in the loop.
At your service,
Erik Kroll