Pay As You Earn (PAYE)

For those who qualify, the Pay As You Earn (PAYE) Program can limit your student loan payments to 10 percent of your discretionary income and offer complete student loan forgiveness after 20 years of consistent payments.

Pay As You Earn (PAYE), sometimes referred to the Obama Pay As You Earn Program, officially became legislation in December 2012. Designed to assist graduates and former students with federal student loans originating on or after October 1, 2007, PAYE was the first student debt relief program signed by President Barack Obama.


How to Qualify for the PAYE Program

There are several requirements you will need to meet in order to take advantage of the PAYE student loan repayment program. First, you’ll need to assess whether your student loans are eligible for the PAYE program. These loans include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans not used to repay PLUS loans made to parents

If your student loans don’t meet these requirements, you could also qualify if you received a disbursement or consolidated your loans on or after October 1, 2011. However, this does not include Direct or FFEL loans made prior to the October 1, 2007 deadline.

Another PAYE requirement includes proving Partial Financial Hardship. This means your eligible loans must be less than payments made on the 10-year Standard Repayment Plan, be greater than your household’s annual discretionary income, and meet poverty line requirements for your state and the size of your household.

Find out if you meet the requirements for the PAYE Program for free.


How PAYE Works

If you qualify for the PAYE Program, your payment is calculated by taking your adjusted gross income (AGI) and subtracting it from 150 percent of your state’s poverty level. This will determine your household’s discretionary income.

Once calculated, your new student loan payment through the PAYE Program will equal 10 percent of your discretionary income. This new payment amount is made until your balance is paid off completely, or you reach the end of the PAYE Program’s 20-year term. As part of the program, you will also need to recertify your income annually to adjust student loan payments based on your current income.

If you have a remaining student loan balance after 20 years, you could have the remainder of their loan forgiven or discharged if no payments are missed during this period. However, you will be required to pay taxes on the amount being forgiven through the PAYE Program.

For more details on the PAYE program, speak with a PAYE specialist by phone at (800) 771-6358.