It can be difficult to get through the landscape of federal student loan repayment programs, especially with the creation and execution of multiple income-driven repayment (IDR) plans. The Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Saving on a Valuable Education (SAVE) plans are some of the most popular programs that have been created in order to assist borrowers in dealing with their student debt. Borrowers must understand the differences among these plans so that they can receive the most suitable repayment plan.
Pay As You Earn (PAYE) plan
PAYE plan has been designed for providing borrowers with regular monthly payments on the basis of income and family size, with the intention of making repayment of student loans simple.
Key features of PAYE
- Payment calculation: The monthly payment is a fixed 10% of the borrower’s discretionary income but not over that under the Standard Repayment Plan.
- Discretionary income definition: The difference between the borrower’s adjusted gross income (AGI) and 150% of the federal poverty guideline for the borrower’s family size and state of residence.
- Repayment term: Any remaining loan balance is cancelled after 20 years of qualified payments.
- Eligibility criteria: The borrowers will have to show a partial financial hardship and will have to have received their first federal student loan after October 1, 2007, and have been awarded a disbursement of a Direct Loan on or after October 1, 2011.
PAYE is appropriate for individuals with significant debt in relation to their income since it limits how much one can pay every month and even has forgiveness after making payments for twenty consecutive years.
Revised Pay As You Earn (REPAYE) plan
The REPAYE plan expanded the PAYE plan by offering income-driven repayment to more borrowers.
Key REPAYE features
- Payment calculation: Similar to PAYE, payment is 10% of discretionary income; however, whereas payments under PAYE are limited to the Standard Repayment Plan amount, payments under REPAYE are not.
- Discretionary income definition: Also based on the AGI and 150% of federal poverty guideline differential.
- Repayment term: Forgivable after 20 years for undergraduate loans, 25 years of qualifying payments for graduate or professional study loans.
- Eligibility criteria: Available to all Direct Loan borrowers, regardless of when they took out the loans, and does not require demonstration of partial financial hardship.
One of the REPAYE benefits is its interest subsidy benefit. If a borrower’s monthly payment does not meet accruing interest, the government covers 100% of unpaid interest on subsidized loans for the first three years and 50% of unpaid interest on unsubsidized loans in all terms. This does not allow loan balances to increase through negative amortization.
Saving on a Valuable Education (SAVE) plan
The SAVE plan is the newest addition to the family of IDR plans, introduced to provide reduced payment rates and to remedy some of the shortcomings of the previous plans.
Key features of SAVE:
- Calculation of payment: Payments are computed at 5% of discretionary income for undergraduate loans and 10% for graduate loans.
- Discretionary income definition: The proposal increases the income exemption to 225% from 150% of the federal poverty guideline, thereby reducing the amount that’s considered discretionary income and smaller payments on a month-to-month basis.
- Repayment term: Similar to the REPAYE plan, undergraduate loans are forgiven after 20 years, and graduate school loans after 25 years of qualified payments.
- Accrual of interest benefit: When the monthly payment made by the borrower is lower than the interest accrued every month, the unpaid interest is not added, hence keeping the loan balance unchanged and not increasing with time.
The SAVE plan is designed to make it easier to repay student loans by decreasing monthly payments and avoiding unpaid interest from building on the loan. As of March 2025, however, the SAVE plan has been subject to legal challenges and suspended while awaiting court rulings.
Comparative analysis
Upon comparing these three plans, various factors are involved:
- Monthly payment amounts: SAVE has the lowest percentage of payment for undergraduate loans at 5% of discretionary income, compared to 10% with PAYE and REPAYE.
- Accrual of interest: Both REPAYE and SAVE permit interest subsidies against negative amortization, and SAVE provides the additional benefit of not assessing unpaid interest.
- Eligibility and availability: PAYE has stricter eligibility criteria, including borrowing on a specific date and demonstrating hardship. REPAYE and SAVE are more widely available, available to all Direct Loan borrowers with no requirement for hardship.
- Marital consequences: Both partners’ incomes are considered in payment calculation under REPAYE irrespective of the filing status for tax, and it can result in higher payment for married borrowers. PAYE and SAVE allow both borrowers to file separately from their spouse so as to exclude a spouse’s income when determining payment.
Recent developments
The Education Department reinstated enrollments in March 2025 for certain IDR plans, including PAYE, following a temporary halt due to lawsuits. The SAVE plan isn’t offered yet because it’s awaiting a final court decision. Borrowers should pay attention to such notices because they can impact payment plans and strategies.
