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What is Pay As You Earn (PAYE)? How do I know if I qualify?

Pay As You Earn, or PAYE, is a new federal student loan repayment plan that is now available to some borrowers with newer federal loans. It caps your monthly federal student loan payment at 10 percent of your discretionary income.

Another repayment program, Income-Based Repayment (IBR), is currently available for all student loan borrowers and caps your monthly payment at 15% of your discretionary income. 

For borrowers who qualify for PAYE, monthly loan payments will be two thirds of what they would be under IBR. Additionally, after 20 years of monthly payments, any remaining student loan balance is forgiven. 

PAYE is also an eligible repayment plan for borrowers seeking to qualify for Public Service Loan Forgiveness.

To determine whether or not you qualify for PAYE, check out the Pay-As-You-Earn calculator  created by the U.S. Department of Education.

In order to qualify for PAYE, you need to have borrowed your first federal student loan after October 1, 2007, and you need to have borrowed a Direct Loan or a Direct Consolidation Loan after October 1, 2011. You also need to demonstrate partial financial hardship.

Most people who qualify for PAYE will have borrowed for college for the first time during the 2008-09 academic year and will have still been in school during the 2011-12 academic year. These can be borrowers who were freshman in 2008-09 and graduated in May 2012 or later. They may also be borrowers who were upperclassmen in 2008-09 and were enrolled in grad school during the 2011-12 academic year or later. 

You can now enroll in PAYE and IBR online .

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