Pay on Payment (PAYE) is a federal student loan repayment plan that sets student loan payments to a percentage of your income. This plan may be much more affordable than a standard repayment plan, taking into account the size of your household and the discretionary income.
How Pay works
With the PAYE plan, you pay 10% of your student loan discretionary income for 20 years. The U.S. Department of Education defines discretionary income as the difference between annual income and the state’s poverty benchmark, based on family size. After 20 years have passed, if you remain in the payment as agreed, your notable federal student loan balance may be eligible for forgiveness.
Like other income-driven repayment (IDR) plans, you must update your financial and household information every year or with each change. For example, if you have a baby or salary change, you should update your PAYE plan information to make payment adjustments that are correct in your plan.
PAYE Qualification Requirements
Not everyone is eligible for PAYE. The requirements are as follows:
- There are direct loans or consolidated federal family education loans (FFEL) program loans.
- Your payment amount based on 10% of your discretionary income will be smaller under payments under standard 10-year repayment plans.
- I received eligible federal student loans after October 1, 2007 and at least one direct loan payment has been made since October 1, 2011.
- You are a “new borrower” and you were not borrowing any outstanding federal student loan balances when you received these loans.
- You must apply for PAYE by July 1, 2024 and register continuously.
How the Paye Application Works
You can complete your PAYE application form on the Education Department website. There is no fee to apply.
If you have the necessary information in advance, the application process will take approximately 10 minutes to complete. The information required for the PAYE application includes:
- personal information: Your full name, address, email address, phone number and the best time to contact you.
- Financial information: You can document your income using the online IRS data search tool. If you are married, you must also include information about your spouse.
- Verified FSA ID: Confirm or create a username and password to act as a legal signature.
In addition to applying for PAYE first, don’t forget that you will need to recertify your plan for annual eligibility.
Alternatives to lower student loan payments
Paye worked well for many borrowers trying to lower student loan payments. However, if you are not eligible for Paye or are currently looking for a plan, there are other options to consider.
First, you may be eligible for various federal student loan repayment plans. Some plans are revenue driven, while others are not based on how much you earn, like extended repayment plans.
You can also consider refinancing your student loan through a private lender. If you qualify for a better student loan refinance rate, you can lower your monthly payments and save interest over the lifespan of your loan.
However, you will be waived of certain government benefits, such as the income-based repayment plans mentioned above and student loan forgiveness. Therefore, refinancing federal student loans should be a last resort only if it becomes too difficult to manage your payments.
Conclusion
Paye is an income-driven repayment program that may offer lower monthly payments than standard plans for eligible borrowers. You can also consider extend repayment programs that are not based on your income. So, as a last resort, you could also consider refinancing your student loan. Before you take out your first next loan, research the best student loan fees before applying.
