Income-Driven Repayment Plans: Questions And Answers - Federal Student Aid, U.s. Department Of Education Page 24
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26the income-driven repayment application.
Miscellaneous
49. I understand that under the REPAYE, PAYE, and IBR plans, the government will pay
some of the interest on my loans. How does this work?
Under the REPAYE, PAYE, and IBR plans, your calculated monthly payment amount may not cover all of
the interest that accrues on your loans each month (this is called “negative amortization”). In this
situation, the government will pay all or a portion of the remaining unpaid accrued interest that is due
each month. The specific interest benefit varies depending on the plan.
Under the REPAYE Plan, if your calculated monthly payment doesn’t cover all of the interest that
accrues, the government will pay
all of the remaining interest that is due on your subsidized loans (including the subsidized portion of a
consolidation loan) for up to three consecutive years from the date you begin repaying your loans
under the REPAYE Plan, and half of the remaining interest on your subsidized loans following this
three-year period; and
half of the remaining interest that is due on your unsubsidized loans (including the unsubsidized
portion of a consolidation loan), during all periods.
For example, if the monthly interest that accrues on your subsidized loans is $40, but your monthly
REPAYE Plan payment covers only $25 of this amount, the government will pay the remaining $15 for the
first three consecutive years from the date you began repaying your loans under the REPAYE Plan, and
will pay $7.50 of the remaining $15 in interest after this three-year period. If the monthly interest that
accrues on your unsubsidized loans is $30, but your monthly REPAYE Plan payment covers only $20 of
this amount, the government will pay $5 of the remaining $10 in interest during all periods.
Under the PAYE Plan and the IBR Plan, if your calculated monthly payment doesn’t cover all of the
interest that accrues on your subsidized loans (including the subsidized portion of a consolidation loan),
the government will pay all of the remaining interest that is due for up to three consecutive years from the
date you begin repaying your loans under the PAYE or IBR plan.
For example, if the monthly interest that accrues on your subsidized loans is $40, but your monthly PAYE
or IBR plan payment covers only $25 of this amount, the government will pay the remaining $15 for the
first three consecutive years from the date you began repaying your loans under the PAYE or IBR plan.
Under the PAYE or IBR plan, you are responsible for paying all of the interest that accrues on your
unsubsidized loans, as well as all of the interest that accrues on your subsidized loans after the end of the
three-year interest subsidy period. Interest that’s not covered by your monthly payment will continue to
accumulate and will be capitalized (added to your loan principal balance) if you no longer qualify to make
payments based on income, or if you leave the PAYE or IBR plan.
Under all three plans, the consecutive three-year period during which the government pays all of the
remaining interest that accrues on your subsidized loans does not include periods of economic hardship
deferment. However, periods of any other type of deferment or forbearance are counted.
For example, if you receive the interest subsidy benefit on your subsidized loans for your first year of
repayment under the REPAYE, PAYE, or IBR plan, and then receive an economic hardship deferment for
the next two years, the government would still pay all of the remaining interest that accrues on your
subsidized loans for another two consecutive years after the economic hardship deferment ends.
However, if instead of receiving an economic hardship deferment, you return to school and receive an in-
school deferment for two years following your first year of repayment, you would have no remaining
Federal Student Aid |
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