On Oct. 27, the Department of Education announced the implementation of Revised Pay as You Earn (REPAYE). It is in an income-based repayment plan that caps borrower payments at 10 percent of their income and has been extended to all borrowers regardless of when they took out their loans. The original PAYE program was only available to those who took out loans prior to October 2007.
REPAYE is expected to provide up to 5 million new borrowers with the ability to participate in the income-based repayment program. Borrowers will need to re-enroll each year, and student loan payments will be based on their income from the previous year. Those who are married need to include their spouse's income to determine how much discretionary income they have. The student loan payment will then be capped at 10 percent of that amount.
Borrowers would make payments for up to 20 years for undergraduate loans and for up to 25 years for graduate loans. If there is a balance remaining after the repayment period elapses, that balance would be forgiven. However, the forgiven balance would be treated as ordinary income for tax purposes. President Obama has proposed that any forgiven student loan balance be characterized as tax-exempt, but Congress would need to authorize that.
People who are overwhelmed by other types of debt may wish to file for bankruptcy. An attorney can explain the eligibility and other requirements associated with filing, and can point out the benefits of bankruptcy, such as an automatic stay of creditor contact, during the process of exploring other forms of debt relief that may be available.