The PAYE program is one of the repayment plans offered by the federal government that aims to reduce your monthly payments. It’s income-driven, meaning that you’ll only pay a portion of your discretionary income while under it. For PAYE, you only need to contribute 10%, which is the lowest rate of any income-driven repayment plan offered for federal student loans.
PAYE is only available to those under federal loans (Direct or Direct consolidation). These loans must originate after October 1, 2011, or October 1, 2007, if it’s your first federal loan. To qualify, you must show that you are in financial hardship. You can prove this through documentation.
What If I Don’t Fulfill the PAYE Requirements?
If you don’t fulfill any of the requirements listed above, you cannot enroll in PAYE. However, there may be other plans that could work for you. Income-Based Repayment (IBR) is available for all borrowers, but you’ll pay 15% of discretionary income to PAYE’s 10%.
There is also an option for the Revised Pay As You Earn plan or REPAYE. It has similar terms as PAYE, but PSLF after 20 years is only available for those who took undergraduate studies. If you took a graduate course, loan forgiveness is only available after 25 years of payment.
The Benefits of PAYE
One of the benefits of PAYE is that you’ll significantly reduce your payments to 10% of your discretionary income. That means that the plan will always accommodate what you have in that month. As long as you’re providing the payments, you’ll continue to fulfill the loan without any issue. You can qualify for Public Service Loan Forgiveness (PSLF) after 20 years of continuous payments.
Applying for PAYE
You can apply for PAYE at the Federal Student Aid website, where you’ll see a button for income-driven repayment plan applications. Your login to the portal will be your FSA ID, the same login used during your first application for the student loan. You’ll then fulfill the following details:
- Most recent federal tax return
After completing the details, you enter the income into a loan payment calculator and choose a plan available. You’ll then add your personal information, confirm, and sign the application. You’ll only have to wait for PAYE’s approval, which will only take up to five working days. There’s also an option to apply for PAYE through a paper application, but doing it online is the more convenient option.
Is PAYE Right for Me?
PAYE is the best option to take if you don’t expect your income will increase any time soon. While many borrowers complete their loans within 20 years, it’s the better option if you cannot do the same. Once you’ve paid your loans for 20 years, the government will repay your loans.
It may also be the ideal option if you’ve completed graduate studies and have more debt to complete. Under PAYE, you can complete the loan within 20 years compared to REPAYE’s 25.