Pay As You Earn Repayment Program (PAYE)

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Information on the Pay As You Earn Program (PAYE)

The Pay as You Earn program (PAYE) is an income driven repayment program under the William D Ford Act. This repayment option was passed by former president Obama back in December 2012. The intent of the PAYE was to provide a third option for those looking for income driven and forgiveness programs. This does however have some of the strictest requirements when comparing to all of the other loans.

ELIGIBILITY

As mentioned before, the PAYE has some of the hardest requirements to become eligible for.

* The borrower must not have an outstanding balance before October 1, 2007 and also have to have a loan disbursed October 1, 2011.

* Your calculated payment must be lower than what the 10 year Standard repayment program will be offering you.

* You must show some type of partial financial hardship.

* Defaulted loans don’t qualify

The PAYE follows the same guidelines that were set in place for the Income Based Repayment program when it comes to the type of loans that can qualify. Such loans are

• Direct Subsidized Loans

• Direct Unsubsidized Loans

• Direct Consolidation Loans

• Subsidized Federal Stafford Loans

• Unsubsidized Federal Stafford Loans

• FFEL Consolidation Loans

Continuing to use John D as our example, John is a 30 year old male that makes an average of $35,000 a year living with girlfriend and their daughter. Under the PAYE repayment option, John’s monthly payments would be $40 a month for the first 12 months of his repayment term. Even when comparing this program to the IBR, he would be saving 20 dollars a month. He has the potential of having approximately $31,829 of his loans forgiven by the federal government. Now that’s what I call a forgiveness program.

Because of its strict requirements the Pay as You Earn program doesn’t have a lot of borrowers that can qualify. But in the event that you are eligible this is one of the best programs to get yourself enrolled in. This program does have a lot of upside to it because it offers a shorter forgiveness term as well it caps your payments up to 10% of your discretionary income. In the event that you are married and file your taxes jointly with your spouse, you can also use your spouse’s federal loan amount to help drive your payments lower.

When it comes to the forgiveness portion of the Pay as You Earn, the borrower has to make 240 qualified payments towards their loans and the rest would be forgiven for you by the federal government. You should also take into consideration that with any of the forgiveness programs, whatever does get forgiven at the end is considered a taxable income that you will need to file on your taxes. Although in the event that you

do work for certain public sector or nonprofit jobs you would have the option of getting your loan forgiven after making 120 qualifying payments. This is also known as the Public Service Loan Forgiveness. The best part taking advantage of the PSLF is that whatever gets forgiven at the end of the term is now no longer considered taxable. This was an incentive that the government place to try and get more people working in the public sector.

In June of 2015, president Obama had started to make changes to the PAYE program. Some of these changes were designed to help lift some of the restrictions that the PAYE first installed. These changes have been so drastic that the program itself has undergone a new name. the Revised Pay as You Earn. 

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Will Student Loan Forgiveness Lower my Monthly Payment?

Most Student Loan Forgiveness programs are first by nature repayment programs. They offer reduced monthly payment options through government incentives. Regardless of your loan size and interest rate, these programs are designed to offer an affordable monthly payment based strictly on your income and household size (expenses). Some programs even allow for a $0 monthly payment whereby the government covers portions of the unpaid interest and the rest of the principle and interest can eventually be forgiven.

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