February 12, 2022

What is Pay As You Earn (PAYE)?


The federal government offers several types of repayment plans to help ease the pressure on new borrowers. One of these is the program Pay As You Earn or PAYE. If you opt for this program, you’ll only pay 10 percent of your discretionary income each month towards the loan. It’s considered one of the lowest repayment options available.

How Does PAYE Work?

Under PAYE, employers automatically deduct the percentage owed by their employees every pay cycle. The money goes straight to the government, with any excess returning to the borrower. If there is a need for additional payments, the borrower settles it when filing their annual tax return.

The system originated in the U.K. and has been running there since the 1940s. The U.S. only began seeing its advantages in the 2000s, leading to its implementation there.

As PAYE depends on the person’s income, the deduction can increase or decrease depending on what they earn. Even with changes, most plans last up to 20 years.

What is PAYE in Terms of Benefits?

By lowering your monthly payments, you are extending the life of your loan for two decades. While that may not seem ideal, it opens the door to another path. PAYE makes borrowers eligible to qualify for Public Service Loan Forgiveness (PSLF). If they make payments for 20 years, the federal government forgives the remaining balance.

However, borrowers need to understand that they are paying more interest and fees because of the longer protracted period. It’s an option you should take if you believe that loan forgiveness is the best option for your circumstances.

It eases the strain on your wallet but does very little in hitting your loan’s principal. Going for PAYE means you commit to payments for the next 20 years.

Qualifying for PAYE

Only borrowers who got their first federal student loan after October 1, 2007, may qualify for the PAYE program. It must also be a Direct Loan or federal loan. Private loans are not eligible for any of the government repayment programs. Most of those taking advantage of PAYE began college after PAYE’s implementation.

Those who cannot qualify for PAYE have other options like the Revised Pay As You Earn (REPAYE) Plan. It has similar terms to PAYE, with changes depending on whether your loan was for undergraduate or graduate study.

Applying for PAYE

All borrowers can begin applying for any repayment plan through the Student Aid portal. The best move is to review each plan and see if it fits your desires. If you are unsure, calculators can help compute how much you’ll give when you’re under PAYE or the other programs. The process is often quick, with many completing their application in less than ten minutes.

Remember that PAYE is usually a decades-long commitment to paying your student loan. If you believe that you can pay it faster than 20 years, you may not want to go with this option. Weigh each choice carefully.

Use Chipper for Lower Payments

Chipper can help you find a student loan repayment plan that actually fits into your budget. You simply fill out your information and link your student loan account for us to generate your options in seconds. We help the average student loan borrower save over $300 a month off their student loan monthly payment. Lowering your monthly payment plan can game changing for your personal finance and can be done in minutes! Sign up for Chipper today to get on track with your student loans.

Use Chipper for The Best Path to Forgiveness

Finding your path to student loan forgiveness is easier than ever before. Chipper helps members find better Income-Driven Repayment (IDR) plans every day. Once enrolled in an eligible repayment plan, we can help you explore your forgiveness options and understand your path towards forgiveness. Sign up with Chipper today and get on track with your student loans.

Use Chipper for Round-Ups

Paying off your student loans doesn’t have to be a long and painful journey. Round-Ups are a way to directly pay off your loans with your everyday spending! By tracking your linked spending account(s), we will calculate the rounded up amount from each transaction in a week (IE spending $4.28 would add $0.72 to the weekly amount). We then initiate a payment towards your student loan for the weekly amount. Get chipping away on your student loans with Chipper today.

Use Chipper for Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) program was created to provide relief to borrowers aiding the public sector. Unfortunately, 30% of applicants are denied due to incorrect paperwork. We can help! Chipper was created to solve this issue by assisting borrowers in understanding their options as well as allowing forgiveness eligible users enroll into the best forgiveness program available. Sign up for Chipper today to see your student loan forgiveness options and get the forgiveness you deserve.

Use Chipper for Teacher Loan Forgiveness (TLF)

The Teacher Loan Forgiveness (TLF) program was created to enable teachers working in Title 1 schools to receive student loan forgiveness of up to $17,500 (depending on their teaching subject). Chipper has helped teachers from all over the country qualify for TLF program and can help you get the forgiveness you deserve today. Find out if you qualify for forgiveness in minutes with our employer search tool.

Don't worry.
Be Chipper.
Get Started