Manage Student Loan Debt with the Pay As You Earn Program

pay-as-you-earn-student-loan-debt

It was several years ago, under the Obama Administration, when the Department of Education began offering a more favorable version of the income-based federal student loan repayment program.

The Pay As You Earn (PAYE) program allows eligible borrowers to cap monthly payments to 10% of discretionary income, and have their loans forgiven after 20 years.

This student loan repayment program can benefit borrowers if you need to make lower monthly payments.

Key benefits of PAYE

PAYE helps keep your monthly student loan payments affordable.

  • Monthly loan payments are based on what you currently earn, not on what you owe.
  • Monthly payments under the PAYE program are capped at 10% of a borrower’s discretionary income.
  • If you make your qualifying payments for 20 years, your federal student loans can be forgiven and discharged.

How to qualify for the PAYE Repayment Program

Requirements for the PAYE Program are strict, but if you qualify it’s a good program to make student loans manageable. Borrowers that didn’t start college until after 2007, will likely qualify for the PAYE  Program.

To qualify for the PAYE repayment program, you must meet the following criteria as a borrower:

  • PAYE only applies to federal student loans that were disbursed on or after Oct. 1, 2007.
  • Have received a Direct Loan disbursement on or after October 1, 2011.
  • Prove Partial Financial Hardship as defined by the U.S. Department of Education. If the monthly amount you would be required to pay on your eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under Pay As You Earn, you have a partial financial hardship.

Loans that Qualify for PAYE

Your loan must be one of the following types of federal student loans to qualify for PAYE:

  • Direct Subsidized or Unsubsidized Loans made to undergraduate student borrowers
  • Direct Plus Loans made to graduate and professional student borrowers
  • Direct Consolidation Loans that don’t include PLUS Loans made to parents.
  • Direct Plus Loans made to parents do not qualify for PAYE.

REPAYE for Borrowers enrolled earlier than 2007

Borrowers who enrolled earlier than 2007 may still be eligible through the REPAYE (Revised Pay As You Earn) Program.

The REPAYE plan was created to address federal student loan debt created prior to 2007. In Dec. 2015, the Department of Education created REPAYE as an extension of the PAYE program. REPAYE removes some of the restrictions imposed by Income-driven repayment plans.

With the REPAYE Plan:

  • Monthly payment would be capped at 10% of your discretionary income.
  • Loan forgiveness is granted after 20 years of payments for undergraduate loans, and 25 years for graduate loans.
  • Borrowers must also qualify for partial financial hardship based on the portion of their income standard repayments.
  • Must have federal direct loans.
  • Single borrowers may best benefit from the REPAYE plan. If you’re married, your spouse’s income and existing federal student loan debt are considered when determining the monthly payment. This is true even if you file taxes separately.
  • Forgiven student loans are taxable income according to the IRS. So if you qualify for student loan forgiveness under REPAYE, plan ahead and prepare for the potential tax bill.

American families are carrying about $1.6 trillion in student loan debt. The PAYE and REPAYE Repayment Plans are just some of the repayment alternatives offered to borrowers. While the repayment plans aren’t ideal, they do offer families a solution to out-of-control student loan payments.

To learn more about the “Pay As You Earn” program visit:

http://www.studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn

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