PAYE or REPAYE? Drive out your Confusion between two repayment options

A student loan is the only way for some teenagers to continue their higher studies. But it is also true that many money lenders do not like to lend money because of the lack of assurance of repayment. Actually, many students are unable to repay the borrowed fund entirely just because of unemployment.

However, in such a condition, the Government has initiated two different types of repayment plans for the student. By analyzing their level of difficulties and assuring lenders that they will get back money such plans have derived. PAYE and REPAYE are two repayment options that a student can avail of while repaying the borrowed fund.

Both of them are Income-Driven Repayment (IDR) options which are entirely based upon the family background of a family. But both of them have some pros and cons. So, if you are in confusion about which one to choose, then you must follow this entire blog.

The resemblance between PAYE and REPAYE

There are many similarities between both of these repayment options. For this reason, students used to fall into confusion between them. Some of these similarities include,

  • Evaluation of instalment

As mentioned earlier, both of them are on the basis of family background. But when it comes to the matter of evaluating the instalment amount, then only the income of the family comes under consideration. While assessing the instalment amount, 10% from the entire income comes under deduction for the discretionary deduction.

After that, 150% from the gross income also gets minus from that 10%, and then only with the remaining one instalment amount comes.

  • Eligibility

Not every student loan borrower is eligible for this particular type of repayment option. Instead, the Government has set some eligibility criteria. Basically, here the repayment option is only eligible to those borrowers who have borrowed money under unsubsidized loans or have borrowed direct subsidized loans. Moreover, the family background and earning members also come under consideration.

  • Recertify the annual income

Borrowers, who have forgotten to recertify their family income structure time and again, are not eligible. Perhaps, 5 years ago, you applied for the PAYE repayment option by showing the family income certificate. If you have not recertified after 1 year, you will not get coverage under such repayment schemes.

  • Availability of loan forgiveness

If you are thinking about whether the loan forgiveness option is available or not, then do not take worry. This is because each of them enables loan forgiveness. But if you select any of these, then you must complete at least 20 years of repayment tenure.

Advantages of PAYE and REPAYE

Both of these repayment options are beneficial for both money lenders as well as borrowers. The Government has brought this facility by analyzing the situations of both of them. PAYE and REPAYE both offer some advantages to students. These are,

Advantages of PAYE

  • If you are still repaying the money after marriage, your spouse needs not to provide any taxes as you are under the PAYE repayment option. It saves money for your family.
  • One can get relief from high instalments if you are repaying through PAYE.

 Advantages of REPAYE

  • One of the most important benefits that a money lender hardly provides to a borrower is that this particular payment option is usually offered to a student. Expanding the interest amount and the extended tenure is one benefit that even PAYE does not provide.
  • While appealing for REPAYE, there is no requirement of a loan disbursement date. If you have an ongoing Federal Student Loan, you are eligible for such repayment benefit. But in PAYE, a student has to share all those copies of loan disbursement. Less paperwork made it famous than others.
  • Whenever you apply for the PAYE repayment option, you must prove that the family income is low. To do such a thing, you must show income proof. However, in REPAYE, you need not offer anything as low-income proof.
  • Perhaps you think that you have to pay more than expected when you pay the interest for a long time. It is a written rule that there is no necessity to pay any extra interest instead of that remaining one. The scope of capitalizing interest is zero.

Disadvantages of PAYE and REPAYE

Both of them have some disadvantages. Before selecting one, you must know about them.

Disadvantages of PAYE

  • A student who borrowed money more than 2 years ago can’t get into this repayment facility. These new payment regulations are only applicable to recent borrowers.
  • The borrower must prove that he is suffering from an immense financial crisis. Only then can he get financial help through PAYE.
  • There is a chance of capitalizing on unpaid interest. It can increase the repayment rate at the end of the payment. So, there is no question of switching over to PAYE.

Disadvantages of REPAYE

  • Unlike PAYE, there is no question of capping instalment. For this reason, REPAYE is not at all a good repayment option.
  • The loan forgiveness takes place only after completing 25 years of repayment. Even after suffering from a financial crisis, a student needs to repay money for a minimum of 25 years.
  • When it comes to the matter of evaluating the amount of the instalment, then if the borrower has a spouse, joint income comes under consideration. So, it is better to borrow guaranteed cash loans for unemployed people and repay the entire debt at once.

Always be aware of the disadvantages of both these payment options. Only on the basis of your comparison, you need to decide whether you need such an Income-Driven Repayment option or not.

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