Pay-As-You-Earn Loans: Flexible Repayment Plans Aligned with Income

Pay-as-you-earn (PAYE) loans are a type of student loan repayment plan that aligns monthly payments with income. This can make it easier for borrowers to manage their student loan debt, especially those who are struggling to make their payments.

How do PAYE loans work?

With a PAYE loan repayment plan, borrowers make monthly payments that are equal to 10% of their discretionary income. Discretionary income is the amount of money left over after paying for essential expenses such as housing, food, and transportation.

PAYE loans have a repayment term of 20 years. After 20 years, any remaining loan balance is forgiven.

Benefits of PAYE loans

There are a number of benefits to PAYE loans, including:

  • Affordability: PAYE loans are designed to be affordable for borrowers. The monthly payments are based on income, so borrowers only pay what they can afford.
  • Flexibility: PAYE loans are flexible and can be adjusted as a borrower’s income changes. For example, if a borrower’s income decreases, their monthly payments will also decrease.
  • Forgiveness: PAYE loans are eligible for forgiveness after 20 years of repayment. This can provide borrowers with peace of mind knowing that they will not be burdened with student loan debt for the rest of their lives.

Drawbacks of PAYE loans

There are a few drawbacks to PAYE loans, including:

  • Extended repayment term: PAYE loans have a repayment term of 20 years, which is longer than the standard 10-year repayment term. This means that borrowers will pay more interest over the life of the loan.
  • Negative credit score impact: Missing PAYE loan payments can have a negative impact on a borrower’s credit score.
  • Tax implications: Any forgiven PAYE loan balance may be considered taxable income.

How to qualify for PAYE loans

To qualify for PAYE loans, borrowers must meet the following criteria:

  • Be a U.S. citizen or permanent resident
  • Have a federal student loan
  • Have a repayment term of at least 10 years
  • Have an income below a certain threshold

How to apply for PAYE loans

Borrowers can apply for PAYE loans online through the Federal Student Aid website.


PAYE loans can be a good option for borrowers who are struggling to make their student loan payments. The affordable monthly payments and flexible repayment terms can make it easier for borrowers to manage their debt. However, it is important to be aware of the drawbacks of PAYE loans, such as the extended repayment term and negative credit score impact.

Here are some additional things to keep in mind about PAYE loans:

  • PAYE loans are only available for federal student loans.
  • PAYE loans are not eligible for Public Service Loan Forgiveness.
  • PAYE loans can be combined with other income-driven repayment plans, such as REPAYE and IBR.

If you are considering applying for a PAYE loan, it is important to speak to a financial advisor to get personalized advice.

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