It's no secret that Americans are struggling under a mountain of student debt. More than 41 million people owe more than $1.2 trillion, according to the Consumer Financial Protection Bureau. And about 25 percent of those Americans are delinquent in their payments or have defaulted on their loans.

But starting in December, applications are expected to become available for a new program that could make it easier to repay those student loans. The program, known as Repaye—“revised pay as you earn”—caps the monthly payment amount at 10 percent of your discretionary income. It's open to anyone with federal student loans, regardless of income or when the loan began.

That's in contrast to earlier repayment programs that required you to show partial financial hardship to qualify and only accepted loans that began after October 2007. Some earlier plans also required you to pay more—15 percent of your discretionary income in monthly payments.

"It's likely that the Repaye plan will stave off the draconian consequences of defaulting on a loan for some people,” says Suzanne Martindale, a staff attorney at Consumers Union, the policy and advocacy arm of Consumer Reports. “But it will also result in those with lower incomes paying a lot more over time.”

Approved loan application. Few students take advantage of income based repayment plans for Federal student loans.

In the past, loan servicers automatically applied a standard 10-year repayment plan to a student loan. If you wanted an alternative, such as a repayment plan based on your income, you had to ask for it. Borrowers often didn't think to do so. Stuck with a standard plan, many found the monthly payments too burdensome and defaulted on their loans.

Switching to the new, income-based Repaye plan could lower the monthly cost, but there’s a downside as well. The interest on the loan payments, which can continue for 20 years or more, can lead you to pay more, in total, over time.

Weighing Options

If you are thinking of applying for the new income-based Repaye plan, you’ll need to consider first whether you are better off with the standard 10-year plan or the new 20-year plan. Consider the interest rate that would be applied to your loan and whether there may be a change in your salary. A big salary increase at work, for example, would mean higher monthly student loan payments.

Here are more pointers to keep in mind:

  • Don’t default on your loan before applying for Repaye. If you do, you won't qualify until you have made on-time repayments of your loan for 9 out of 10 months. 
  • Check to see whether you qualify. Even if you didn’t qualify for earlier repayment plans, you may still qualify for Repaye.  
  • Review different plans. There are five income-based repayment plans to consider. Before choosing one, review all five, as well as the standard 10-year schedule, to see what your monthly and total payments would be.
  • Determine how long the repayment period will be. Plans generally range from 10 to 25 years depending on whether your loan covers only undergraduate school or graduate school as well.
  • Think about your taxes. While the balance of your student loan will be forgiven after 20 or 25 years, it will also be treated as ordinary income. That you means you could face thousands of dollars in taxes.
  • Apply online. The income-based repayment plans are all available online at


Correction: An earlier version of this story incorrectly stated the number of months you must make timely student loan payments in order to rehabilitate a defaulted loan.