Ibrahim Gardner
If you're a student borrower, you may be eligible for an income-driven repayment (IDR) plan such as Pay As You Earn (PAYE). IDR plans allow you to make monthly payments based on your income, which can be helpful if you're a low-income borrower. To apply for PAYE, you must submit an income-driven repayment request to your student loan servicer, either by mail or online. You will need your FSA ID, personal information, spouse information (if applicable), and income information to complete the request. PAYE is available for Direct Loan borrowers only, and eligible loan types include Direct Subsidized/Unsubsidized, Direct Grad PLUS, and Direct Consolidation loans. Your monthly payments will be capped at 10% of your discretionary income and will be based on your eligible federal student loan debt, family size, and income.
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What You'll Learn
Enrolling in PAYE
To enroll in PAYE, you can either mail a completed income-driven repayment request to your student loan servicer or complete the process online. The online method is the quickest and easiest way to submit your request. Visit studentaid.gov and log in with your Federal Student Aid ID (FSA ID). If you don't have one, you can create an FSA ID. Select the income-driven repayment plan request option and preview the form to understand what documents you need. You may require documents like your tax return or proof of any taxable income earned in the past 90 days.
After gathering the necessary documents, choose the PAYE plan if it suits your situation the best. Complete and submit the application by entering the required details about your income and family. If you qualify for multiple income-driven repayment plans, you can choose the plan with the lowest payment or specifically select PAYE.
Once enrolled in PAYE, remember that you must resubmit the income-driven repayment application every year unless you provided consent for automatic tax information access during the initial application. Your payment amount will be valid for 12 months, and any changes in your income or family size may result in adjustments to your payment amount.
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Online application
To apply for a Pay As You Earn (PAYE) student loan online, you must first determine if you are eligible. PAYE is a federal student loan repayment plan that is suitable for married borrowers, graduate students, and those with qualifying low incomes. Many federal loans are eligible for PAYE, but it is only available for Direct Loan borrowers. Eligible loan types include Direct Subsidized/Unsubsidized, Direct Grad PLUS, and Direct Consolidation loans.
If you meet the eligibility criteria, you can submit your request for PAYE online. You will need your FSA ID, personal information, spouse information (if applicable), and income information. You can use an online IRS data retrieval tool to document your income. If you haven't filed a tax return, you can provide alternative documentation, such as a current pay stub, or indicate that you currently have no taxable income.
To begin the online application process, visit studentaid.gov and log in with your Federal Student Aid ID (FSA ID). If you don't have an FSA ID, you can create one. Once you are logged in, select the income-driven repayment plan request option. Preview the form to understand what documents you need to have ready. Choose the PAYE plan and complete the application by entering the required details about your income and family.
It is important to note that PAYE requires annual recertification to remain eligible for the payment plan and eventual loan forgiveness. Additionally, your monthly payments under PAYE are typically calculated as a percentage of your discretionary income, and they will never exceed the standard repayment plan amount.
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Required documents
To apply for a Pay As You Earn (PAYE) student loan, you will need to gather some documents to complete your application. PAYE is a federal student loan repayment plan that caps monthly payments at 10% of your discretionary income. After 20 years of monthly payments, any remaining student loan balance is forgiven.
- FSA ID: You will need your Federal Student Aid ID to log in and access your account information. If you don't already have one, you can create an FSA ID on the Federal Student Aid website.
- Personal information: This includes your full name, date of birth, Social Security number or Individual Taxpayer Identification Number, and contact information.
- Spouse information (if applicable): If you are married, you will need to provide information about your spouse, such as their name, date of birth, and income or loan debt. Their income will be considered if you file a joint tax return.
- Income information: You will need to provide documentation of your current income, such as pay stubs, tax returns, or other proof of taxable income earned within the past 90 days. Your monthly payment amount will be based on your eligible federal student loan debt, family size, and income.
- Loan information: Details about your existing student loans, such as the loan type, loan amount, and repayment status. Direct Subsidized/Unsubsidized, Direct Grad PLUS, and Direct Consolidation loans are eligible for PAYE.
- Family size: Information about your family size is required to determine your monthly payment amount. Your payment amount will be based on your income and family size, and it will be valid for 12 months. You will need to reapply each year with updated information to continue on the PAYE plan.
It is important to note that you will need to submit a new Income-Driven Repayment Plan Request form annually to provide updated income and family size information. Additionally, if your income or family size changes during the year, your payment amount may also change.
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Payment amounts
The Pay As You Earn (PAYE) plan is an income-driven repayment (IDR) plan that caps federal student loan payments at 10% of your discretionary income. This means that your payments will never be more than 10% of your income. If your income changes, your payments will also change. You will receive a notice before a new payment amount comes into effect.
PAYE is unique in that it limits capitalized interest to 10% of your balance. Capitalized interest is interest added to your loan balance, which increases the amount you owe, as interest accrues on this larger balance.
Under PAYE, your remaining loan balance will be forgiven after 20 years of repayment, no matter what type of federal loans you have. This is in contrast to other income-driven plans, which take 25 years until forgiveness or add five extra years to your repayment term if you took out loans for graduate or professional studies.
If you are unsure whether PAYE is right for you, consider using Federal Student Aid's Loan Simulator to see how much you might pay under different plans. You can also talk to a tax professional to understand the pros and cons of different tax filing statuses in relation to your student loan payments.
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Recertification
You will be notified at least three months in advance of the deadline, which is typically November 1st. You must submit your recertification request online at StudentAid.gov/IDR when notified by your servicer. If you gave consent for your tax information to be accessed during the initial application, your recertification will be automatically renewed.
If you miss the recertification deadline, your payments will switch to the standard plan amounts, and any interest will be capitalized and added to your principal balance. Therefore, it is important to stay on top of the recertification process and submit your updated financial information on time.
To complete the recertification process, you will need to provide documentation of your taxable income, such as your tax return or other proof of income earned within the past 90 days. This information will be used to determine your payment amounts for the upcoming year, which can increase or decrease based on your updated financial situation.
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Frequently asked questions
PAYE stands for Pay As You Earn, an income-driven repayment plan that caps federal student loan payments at 10% of your discretionary income.
You can apply for PAYE by mailing a completed income-driven repayment request to your student loan servicer, but it is recommended that you complete the process online.
You will need your FSA ID, personal information, spouse information (if applicable), and income information to complete the request.
Eligible loan types include Direct Subsidized/Unsubsidized, Direct Grad PLUS, and Direct Consolidation loans. Direct Parent PLUS loans, defaulted loans, and consolidation loans that repaid a Parent PLUS loan are not eligible for PAYE.
The best repayment plan depends on your situation and eligibility. If you expect to earn a high income in the future, have grad school debt, or are married with two incomes, PAYE is usually the best option.
