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Program that eases student loan burden is expanding

More student loan borrowers are expected to gain access this year to a repayment plan that cuts monthly debt payments to a small share of their income.

The plan has been called Repaye, for "revised pay as you earn." The plan is based on the "pay as you earn" repayment program that became available to some student loan borrowers nearly three years ago. The new plan grew out of an executive order signed last year by President Barack Obama, who aimed to expand the pool of borrowers helped by the pay-as-you-earn program. Concern has been growing about the economic impact of student debt and mounting loan defaults. In 2013, nearly 70 percent of graduating college seniors had student loans, and their average debt was more than $28,000. The Obama administration has said up to 5 million more borrowers will become eligible for the expanded program.

The new version of the pay-as-you-earn program will be available to anyone with federal direct loans, regardless of when students got the loans and what their debt-to-income ratio is. (The original pay-as-you-earn plan is available only to those who borrowed after 2007 and requires borrowers to have high debt relative to their income.)

Participants will have their monthly payments capped at 10 percent of their discretionary income. For undergraduate loans, any balance remaining after 20 years will be forgiven. Graduate school loan forgiveness comes after 25 years.

Here are some questions to consider:

When can I enroll in Repaye?

The Education Department is expected to issue final rules for the plan before Nov. 1, and borrowers are likely to be able to enroll before the end of the year. The department is weighing public comments submitted over the summer and could revise the plan.

What does discretionary income mean, in terms of my student loan payments?

Discretionary income, for the purposes of Repaye and some other federal loan repayment programs, refers to what you earn above 150 percent of the federal poverty line, or above $17,655 for 2015. So if your income is $30,000, your discretionary income used to figure the monthly payment would be $12,345. (Under Repaye, a borrower with income of $25,000 and undergraduate loans totaling $30,000 at 6 percent would have a starting monthly payment of $61, compared with $333 under a standard, 10-year repayment plan, according to an example from the Education Department.)

Does this mean other income-related repayment plans will go away?

No, at least not right now. Borrower advocates say that Repaye may, eventually, serve as a simpler model to replace what is currently a confusing menu of income-related repayment options, all with varying criteria.

In the meantime, you may still benefit from other options, depending on the type of loan and when it was borrowed. Loans made under a now-discontinued program in which the federal government backed loans made by private borrowers are not eligible for Repaye, unless you consolidate them into a new loan. But such loans are eligible for a version of another program known as income-based repayment. You can apply online at studentloans.gov for the plan that offers the lowest payment for which you are eligible.

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