The PAYE plan, or Pay As You Earn, is a federal student loan repayment plan that was introduced by the U.S. Department of Education in 2012. It is designed to help borrowers with high levels of student loan debt and low incomes to manage their loan repayments.
Under the PAYE plan, borrowers' monthly loan payments are capped at 10% of their discretionary income, which is calculated as the difference between their adjusted gross income and 150% of the poverty guideline for their family size and state of residence. Additionally, the PAYE plan offers loan forgiveness after 20 years of repayment.
To be eligible for the PAYE plan, borrowers must have certain types of federal student loans, including Direct Loans and some types of Federal Family Education Loans (FFEL). Borrowers must also demonstrate partial financial hardship, meaning that their monthly payments under PAYE would be lower than their monthly payments under the standard 10-year repayment plan.
It's worth noting that the PAYE plan is one of several income-driven repayment plans offered by the Department of Education, each with its own eligibility requirements, repayment terms, and benefits. Borrowers should carefully evaluate their options and consult with a financial advisor or student loan expert before selecting a repayment plan.
