Last week we discussed the basics of the Standard Student Loan Payment Plan. This week we are going to touch on the Pay As You Earn Repayment Plan (PAYE Plan).
PAYE is one of the four federal income-driven repayment plans available for federal student loans. Generally, your monthly payment under the PAYE Plan is 10% of your discretionary income, but it’s never higher than what you would be paying if you were on the Standard 10 year Repayment Plan.
Unless you are eligible for Public Service Loan Forgiveness PAYE has a 20 year repayment period. At the end of 20 years your remaining loan balance will be forgiven. If you have a loan balance that is forgiven you will have to pay income taxes on the forgiven amount. You will need to recertify your income and family size every year in order to get your payments to be based on your income.
Note: Only the income of the borrower is considered if Single or MFS Tax Filing Status.