What is Pay As You Earn (PAYE)? How do I know if I qualify?
Pay As You Earn, or PAYE, is a federal student loan repayment plan that is 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.
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. To determine whether you qualify for PAYE, check out the Department of Education’s Loan Simulator.
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.
Individuals who do not qualify for PAYE may qualify for the Revised Pay As You Earn (REPAYE) repayment plan. REPAYE provides many of the benefits of PAYE, but for all Direct Loans. REPAYE also caps payments at 10% of your discretionary income and is a qualified repayment plan to qualify for Public Service Loan Forgiveness. However, your loans will only be forgiven after 20 years of payment if they were all borrowed for undergraduate study. If any portion of your loans was for graduate study, any remaining balance will be forgiven after 25 years of repayment.
You can now enroll in PAYE, REPAYE, and IBR online .
Here are some ideas for making the most of income-driven repayment.