PAYE (Pay As You Earn)
What Is PAYE (Pay As You Earn)?
PAYE (Pay As You Earn) is a federal student loan repayment plan that limits monthly payments to 10% of discretionary income.
It was designed to make payments more affordable for eligible borrowers with financial hardship.
PAYE applies to certain Direct Loan borrowers who meet eligibility criteria.
Why It Matters
PAYE:
- Caps payments at 10% of discretionary income
- Offers forgiveness after 20 years
- Protects against high required payments
PAYE can significantly reduce monthly obligations compared to standard repayment.
How PAYE (Pay As You Earn) Works
PAYE calculates monthly payments based on discretionary income and family size.
Example: A borrower earning $38,000 annually may pay substantially less under PAYE than under a fixed 10-year plan.
Borrowers must recertify income annually.
Remaining balances may qualify for forgiveness after 20 years of qualifying payments.
PAYE vs. IBR
PAYE → 10% cap with 20-year forgiveness
IBR → May require 15% and 25-year term
Eligibility requirements differ.
FAQs About PAYE
Does PAYE apply to older loans?
Eligibility depends on loan disbursement dates.
Can payments increase under PAYE?
Payments adjust annually with income changes.
Is forgiveness guaranteed?
Forgiveness depends on meeting program requirements.
Related Terms
