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Pay As You Earn (PAYE) is an income-driven repayment (IDR) plan that caps federal student loan payments at 10% of your discretionary income and forgives your remaining balance after 20 years of repayment.
PAYE at a glance
Repayment length: 20 years.
Payment amounts: 10% of your discretionary income.
Other qualifications: Must have federal direct loans.
Best for: Spouses with two incomes; grad debt; those with low earning potential.
You'll likely qualify for PAYE if you can't afford your payments and didn't start college until after 2007. Borrowers who enrolled earlier may still be eligible if they did all of the following:
Took out federal student loans after Oct. 1, 2007.
Didn't have a federal student loan balance when taking out those loans.
Received a direct loan on or after Oct. 1, 2011.
Is PAYE right for you?
If you meet its requirements, PAYE is usually the best income-driven option for you in the following instances:
You don’t expect your income to increase much over time.
You have grad school debt.
You’re married, and you and your spouse both have incomes.
PAYE vs. other income-driven plans
All income-driven plans share some similarities: Each caps payments to between 10% and 20% of your discretionary income and forgives your remaining loan balance after 20 or 25 years of payments.
Starting July 2024, these figures will change as the rest of the Saving on a Valuable Education (SAVE) plan takes effect. Payments for undergraduate loans will be capped at 5% of discretionary income. Also, individuals can receive loan forgiveness after 10 years of payments if they have $12,000 or less in student loans.
Use Federal Student Aid’s Loan Simulator to see how much you might pay under different plans.
The biggest difference with Pay As You Earn is that it limits capitalized interest to 10% of your balance; most other income-driven plans don't offer this benefit. Capitalized interest — or interest added to your loan’s balance — increases the amount you owe, as interest then accrues on a larger balance.
For example, let's say you have a $100,000 loan that's accrued $15,000 in interest. If you left PAYE, only 10% of your original balance — or $10,000 — of that interest would be added to your balance. Other plans would capitalize the entire $15,000, not only costing you that extra $5,000 but also allowing future interest to grow on a higher balance.
If PAYE doesn't sound right for you, consider one of the other three income-driven repayment plans: SAVE, Income-Based Repayment or Income-Contingent Repayment.
In most cases, the least confusing way to select an income-driven plan is to let your servicer place you on the plan you qualify for that will have the lowest monthly payment. But based on its features, specifically choosing PAYE may be right for you in the following instances:
How to apply for PAYE
You must enroll in Pay As You Earn. You can do this by mailing a completed income-driven repayment request to your student loan servicer, but it’s easier to complete the process online. You can change your student loan repayment plan at any time.
Visit studentaid.gov. Log in with your Federal Student Aid ID, or create an FSA ID if you don’t have one.
Select income-driven repayment plan request. Preview the form so you know what documents to have ready, like your tax return or alternate proof of any taxable income you’ve earned within the past 90 days.
Choose your plan. If you qualify for more than one income-driven repayment plan, you can be automatically placed in the plan with the lowest payment or specifically choose PAYE if it makes the most sense for you.
Complete the application. Enter the required details about your income and family. Remember to include your spouse’s information, if applicable, as it will affect your payments under PAYE.
Your servicer can put your loans in forbearance while processing your application. You aren’t required to make payments during forbearance, but interest will accrue on your loan. This increases the amount you owe.
You can temporarily self-report income
Through December 30, 2023, borrowers can self-report their income when applying for or recertifying an income driven-repayment plan, according to the Education Department. That means you don't have to submit tax documentation when you report your income. This can be completed online when you submit the IDR application, as normal; in Step 2 of the application, select "I'll report my own income information."
Other ways to pay less
If income-driven repayment isn't right for you, the federal government offers extended repayment and graduated repayment plans, which lower your payments but aren’t based on your income. You may pay more interest under these plans, though, and neither offers loan forgiveness.
You also may be able to pay less by refinancing your student loans. Refinancing federal student loans can be risky, as you’ll lose access to income-driven repayment and other federal loan programs and protections. But if you’re comfortable giving up those options and have strong credit as well as a steady income, refinancing may save you money.