Is a new repayment option available to eligible borrowers as of December 21, 2012. The Pay As You Earn Repayment Plan assists borrowers whose student loan debt is high relative to income. The plan is designed to keep monthly student loan payments affordable and usually has the lowest monthly payment amount of the repayment plans that are based on income.
To qualify for PAYE, a borrower must demonstrate partial financial hardship. A partial financial hardship occurs when a borrower’s monthly amount required for payment on the borrower’s eligible student loans under a 10-year Standard Repayment Plan is higher than the monthly amount required under PAYE.
To qualify for PAYE, a borrower must also be anew borrower as of October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. A borrower is considered a “new borrower” if he/she had no outstanding balance on a Direct Loan or FFEL Program loan as of October 1, 2007, or had no outstanding balance on a Direct Loan or FFEL Program loan when a new loan was received on or after October 1, 2007.
The payment amount for a PAYE Plan may increase or decrease each year based on the borrower’s income and family size. Additionally, once a borrower has qualified for PAYE, payments may continue even if the borrower later no longer demonstrates partial financial hardship.
The PAYE Plan structures loan payments based on the borrower’s income and family size. Each year, the payment under PAYE will be adjusted based on changes to annual income and family size. A monthly payment will be 10 percent of the borrower’s discretionary income and will never be more than the amount required under a 10-year Standard Repayment Plan. Payments may also be less than other repayment plans.
In addition to a more manageable monthly payment, the PAYE plan also helps limit the interest paid on student loans. If the monthly payment amount under PAYE does not cover the interest that accrues on the loans each month, the government will pay the unpaid accrued interest on Direct Subsidized and on subsidized portions of Direct Consolidation Loans for up to three consecutive years from the date the borrower began repayment under PAYE. Additionally, while the borrower demonstrates partial financial hardship, interest accrued that is not covered by loan payments will not be capitalized, even if it accrues during deferment or forbearance. When a borrower no longer demonstrates partial financial hardship, unpaid interest continues to capitalize, but the total amount of capitalized interest is limited to 10% of the original principal balance when the borrower begins payment under PAYE.
PAYE payments are structured for a term of 20 years. If a borrower on the PAYE plan has made qualifying payments for 20 years, and a balance remains on the loans, the remaining balance will be forgiven.
Direct Subsidized Stafford Loans (Direct Loan Program)
Direct Unsubsidized Stafford Loans (Direct Loan Program)
Direct PLUS Loans made to graduate or professional students
Direct Consolidation Loans without underlying PLUS loans made to parents
Direct PLUS Loans made to parents
Direct Consolidation Loans that repaid PLUS loans (Direct or FFEL) made to parents
FFEL Program loans
Private education loans