PAYE Plan (Pay As You Earn)
An income-driven repayment plan with 10% discretionary income payments, capped at the Standard amount, with forgiveness after 20 years for recent borrowers.
What You Need to Know
Pay As You Earn (PAYE) offers a middle ground between the generous SAVE plan and the older IBR plan, with a unique payment cap feature.
Payment Calculation:
- 10% of discretionary income
- Discretionary income = income above 150% of poverty line
- Payments capped at Standard 10-year plan amount
- Never pay more than you would on the Standard plan
Eligibility Requirements:
- Must be a "new borrower" as of October 1, 2007
- Must have received a Direct Loan disbursement after October 1, 2011
- Not available to all borrowers (stricter than IBR or SAVE)
Key Features:
- Payment cap protects high earners with moderate debt
- Forgiveness after 20 years of qualifying payments
- Unpaid interest subsidy for first 3 consecutive years
- Counts toward Public Service Loan Forgiveness (PSLF)
Best For:
- Recent borrowers (post-2011) with moderate debt loads
- Those who expect significant income growth
- Borrowers who want protection from payment spikes
Trade-off:
- Stricter eligibility than other IDR plans
- Married borrowers must file taxes jointly or include spouse's income
Sources & References
This information is sourced from authoritative government and academic institutions:
- studentaid.gov
https://studentaid.gov/manage-loans/repayment/plans/income-driven
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