Pay As You Earn (PAYE) is the newest student loan repayment method.  This new repayment method became available on December 21, 2012.  The restriction to the PAYE are specific and are designed to help the most recent student loan borrowers.

To qualify you need three specific student loans:

  • No federal student loan debt balance prior to October 1, 2007
  • Applied to student loans after October 1, 2007
  • Received a  federal student loan program distribution after October 1,2011

Here is a video that may be helpful in explaining the different aspects of Pay As You Earn Student Loan Repayment:

The advantages to the Pay As You Earn plan benefit students who currently do not have a significant amount of disposable income since the payments are based on  10% of a person’s adjusted gross income.  It also eliminates the person’s student debt after 20 years if you stay in this payment method.  Another advantage is that PAYE is a student loan repayment plan that qualifies for the Public Service Loan Forgiveness Program.

With all of the Income Based Student Loan Repayment Plans your need to be careful about negative loan amortization. This financial term means that a student under one of these programs many not be paying all of the loan interest.  This interest payment shortfall may be added to the loan balance.  Under the Pay As You Earn method this is limited to 10% of the original loan balance.

Proper planning of your student loans needs to be done.  Having the lowest payment may not be the best option but the PAYE method can help you avoid loan default which should be avoided at all cost.  This method and other methods can help you stay current and make the student loan repayment manageable.

We hope you find this video helpful.  For more information on various aspects of student loan repayment visit our resource page to view other videos.  If you need professional financial help, please go to our Services page.