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Why REPAYE Stinks as a New Student Loan Repayment Program

Written by Steve Rhode

By Bob Preston

The President and the United States Department of Education has just unwrapped a gift for every college student who ever took out loans to get an education – But beware! Sometimes the gift wrapping is much more attractive than the present. This one should be opened with extreme care, or as I will suggest, left under the tree!

Effective December 17th, 2015 President Obama’s “Revised Pay as You Earn” aka REPAYE is now an “option” available in the gift sack of what I can only describe as the White Elephant Gift of the Year!

REPAYE is the latest repayment scheme and like the other loan payment programs attempts to “help” struggling debtors. My idea of help must be different from the President and the Department of Education, because I see more problems with this plan than any viable aid to the debtors.

Once again the Department of Education (DOE) decorates and wraps up the plan in a display of glittering ribbons and bows – and you guessed it “there are plenty of strings attached” and the surprise revealed inside could be non-returnable.

The gloss and glitter appeal is laid out in the attraction that the plan is a “fit-all” plan. No matter how old the debt is, regardless of the debtor’s income, and with the lure of only having to pay 10% of discretionary income for only 20 years, everyone is eligible for this fantastic gift!

But wait! Hold your horses (or reindeer)! Yes… you can be sure – there is some “coal” in the stockings here. Not everything that glitters is Gold(en). Doing a “sneak-peak” when no one is looking often reveals what is under the fancy wrappings.

In the case, we find a few unfavorable things in the box. First, to be eligible for this new plan the borrower cannot be in default on the loan(s).

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Second REPAYE is only open to federal student loans which can be repaid under the income-driven plans. Private student loans are not eligible.

Third, while REPAYE is open to anyone who has loans granted under the former Federal Family Education Loan Program (FFEL) system or via Perkins (whereby the money originated from banks who backed the loans, changes made in 2010 made DOE the lender and holder of the notes, making the borrower a pawn of the Federal Government); in order for the borrower to get into REPAYE they must agree to a consolidation and convert those loans into a Direct Loan (William D. Ford Direct Loan Program – owned and operated by the DOE in Washington, DC).

Fourth, Parent PLUS loans are not eligible for inclusion in REPAYE, and must be paid under the terms agreed to by the lender and borrower.

Fifth, while REPAYE seduces the borrower with such tinsel as removing the “Partial Hardship” requirement that was an eligibility requirement in prior programs, the fact remains that this repayment scenario takes the original 10-year term and extends it to 20 years! Well, yes, twenty years for undergraduate degrees…. but 25 years for graduate degrees.

Sixth danger! Beware of “The Old Bait and Switch”. Your Uncle’s gift to you is this… yes you can switch into REPAYE from any of the (4) older income-driven plans. However, rub the sand out of your sleepy eyes first! Because any unpaid interest will be added to your loan principle which of course causes interest to accrue on a higher loan balance, and if you do consolidate your FFEL into REPAYE, all previous payments no matter how many years made, do not count towards the 20 or 25 year pay off period to earn the promise of so-called “forgiveness”.

Seventh drawback… REPAYE participants must update their income status annually. Now who wants to bet that if you fail to do so, and the Feds check your IRS returns and the income has changed, that they will cancel the plan and demand immediate pay-off? Just thinking here… and knowing the “Grinch” as I do, I could see that happening to spoil someones Christmas.

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Oh, and married borrowers can no longer “exclude” their spouses income! That means you must include it in the yearly report, and pay accordingly based on combined incomes!

[Ed: This really sucks if you have a low REPAYE payment and then get married or your spouse gets a raise.]

Finally, Santa and the DOE have one more trinket in their bag! DEBT FORGIVENESS!
Yes, Virginia there is a Santa Claus! But this Elf has a real treat in store for those who fall for this gimmick.

While stuck in a 20 or 25-year repayment plan and paying on those loans based on your income and having Big Brother checking in on your earnings, taking a mere 10% of your wages (until Big Brother changes the percentage?); the debtor glides along with visions of sugar plums and loan forgiveness dancing in their heads, only to come to face-to-face with Scrooge the collector! Yep! And this Scrooge does not get a change of heart!

At the end of REPAYE, with the loan forgiven, the debtor is fully responsible for the TAXES on the amount forgiven! Ho! Ho! Ho!

(Can you agree there is nothing Merry about this? — I think I will take the lump of coal, thank you very much!)

Reposted with permission from this site.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.


  • I just had to switch to REPAYE since I literally can’t afford anything else. With the interest assistance I can’t see making any real money to repay my loans until I move to a city that offers more than slavery and poverty for college graduates. I’ll never get married anyway so that’s not an issue.

    I’m fuming still because I got ripped off with my education and I’m being pestered to get a worthless STEM degree. Does Computer Science count for nothing? Writing in Python, Java is useless too so don’t waste your time people unless you want to make minimum wage!

    With the ICBR program the interest was compounding and since I’ve defaulted on my private student loans there was no point in trying anymore. C’mon how does the FEDERAL GOVERNMENT NOT consider the fact you have private loans too? Do they really expect people to make ends meet when 90% of your take home pay goes to student loans? If you don’t know it now guess what I was told by my new lovely student loan servicers for my federal student loans? Now people can only utilize a deferment period of three years for student loans!

    Are you kidding me? Do I get to worry about being homeless again?!

    What I really love now is how the absolutely insane squabbling candidates for the Presidential rat race are lying about education. So everyone else get a “free” education but ME? I get screwed again? Who are these morons kidding? Someone has to pay and it will be everyone in this country getting robbed to pay another person’s way through college with outrageous tax hikes. I guess my generation will be forgotten and be used as a scapegoat of sorts.

    I think this country has gone insane. I don’t want to live on this planet anymore.

  • I just want to add that the increase of my new student debt was in interests accrued during the five years under Chapter 13. If Chapter 13 help to organize your finance and with a fresh start, I do not see where is the fresh start is. I think that the student loan should be exempt for interest during the chapter 13 or five periods, if it wants to help people to new fresh start.

  • REPAYE is better than not be able to pay you monthly student loan and put in more risk your salary and other assets. You have 20 years to pay them but if you do not have any income or loss you job the government has to be paid for. Even when you have to pay taxes in your forgiveness student loan balance, the government already paid ahead what you have to pay in the future. Think about it. After I lost my job, in 2006 and was not able to find a job, until 2008, I went back to school to get my MBA and it was the biggest mistake in my life. I got an MBA, increased my student debt loan from $30,000 to almost $85,000 and I never got a job that I was offered or expected after my MBA.. I ended in a Federal Job, with a salary that only help to survive. Due to my increase in student loan, I had to declare Chapter 13, in order to save my Federal Job (to keep my clearance) because the student loan monthly payment was around $850 a month or more. During those 5 years in Chapter 13, my student loan was including in Chapter 13, (very small payment) but now my Student loan debt is worst that when I filed for Chapter 13 in May 2011. That is insane. I went from $85,000 to $156,000 in student debt. I will finish my Chapter 13 payment plan in June 2016 and I will ending with more debt. REPAY will help some kind.

    • Raul, Chapter 13 did not help you! Perhaps you can re-open your Bankruptcy and file an Adversary Proceeding (Complaint)? Under 11 U.S.C. §523(a)(8) you will have to “prove the hardship” but if your loan continues to grow due to accrued interest and penalties you will see it reach an amount that you will never be able to pay off! I started a year ago learning about the UNDUE HARDSHIP DISCHARGE. And as I write this I am moving forward on my case having filed my Adversary Proceeding against the Department of Education. Also find and read the July 7, 2015 Policy Directive published by the Dept. of Ed. it is their policies on undue hardship discharges, and I am using that letter in my complaint. Bob Preston

  • Wow, why do they even bother with awful repayment options like this? I’ve defaulted and told my lenders to take a hike because I can’t make it in this economy. When companies hire illegal immigrants and foreign workers Americans suffer big time. Forget getting a STEM degree since 75% of the graduates aren’t even working in their field of study. They’ll hire someone from India for 1/2 – 1/3 of what they’ll pay an American drowning in loan debt. They’ll use the visa training costs as a company write-off because corporations are people and real people are well, expendable commodities.

    I’ve had to look at Income Based Repayment and Income Contingent Repayment and both options are a joke because of compounding interest. Meanwhile the anemic middle class is dying out because of debt slavery and combined bank bailouts with shrinking wages.

    If you think you can work full time and make enough to go to a local college forget it. Employers treat anyone trying to better themselves as “elitist pointy-headed liberals” and you’ll get fired for anything. You want to see real reform when it comes to college costs and student loans? Good luck with that because the government is making money hand over fist at the expense of the future of this country. I’m looking at moving yet again and as usual the rents are too high, no one is really shopping (for our stupid economy), and wages are a joke. I can’t wait for this country to either pull the trigger and change the way our economy functions or until it collapses. We prop up 24 other countries through remittances alone! Our current plan of failure isn’t working and no one in the government cares, but as long as they get paid they’ll tell the rest of us to get screwed.

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