How to Qualify for the PAYE Repayment Plan

The Pay As You Earn (PAYE) student loan repayment plan is a federal program designed to help borrowers manage their federal student loan debt by capping monthly payments based on income and family size, providing financial relief and a path toward eventual loan forgiveness. PAYE is particularly beneficial for borrowers with lower incomes relative to their loan balances, as it adjusts monthly payments to align with their current financial capacity. It serves as one of several options for federal student loan borrowers seeking flexible repayment terms.

Eligibility Criteria

To qualify for the Pay As You Earn (PAYE) plan, borrowers must meet specific requirements related to their loan types, borrowing history, and current financial situation. Only federal student loans are eligible for PAYE, including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to students, and Direct Consolidation Loans. Loans not eligible for PAYE include private student loans, Federal Family Education Loan (FFEL) Program loans, and Federal Perkins Loans, though some FFEL Program loans and Perkins Loans can become eligible if consolidated into a Direct Consolidation Loan. Parent PLUS loans are also generally not eligible for PAYE.

A borrower must also meet the “new borrower” requirement. This means having no outstanding balance on a Direct Loan or FFEL Program loan as of October 1, 2007, and having received a disbursement of a Direct Loan on or after October 1, 2011.

A Partial Financial Hardship (PFH) exists if the borrower’s calculated monthly payment under PAYE is less than what they would pay under the Standard Repayment Plan with a 10-year repayment period. This is determined by comparing a borrower’s adjusted gross income (AGI) and family size to 150% of the federal poverty guideline. If the calculated payment using 10% of discretionary income (AGI minus 150% of the poverty line) is lower than the standard 10-year payment, the borrower meets the PFH criterion.

Gathering Required Information

Before applying for the Pay As You Earn (PAYE) plan, borrowers need to gather specific personal and financial documentation to complete the application accurately. Personal details include your full legal name, Social Security Number, date of birth, and current contact information such as address, phone number, and email.

Loan information is also necessary, specifically the account numbers for all federal student loans. Borrowers can typically find this information on their loan servicer statements or by logging into their Federal Student Aid (FSA) account on StudentAid.gov.

Income documentation is needed for determining the calculated monthly payment. The most common way to verify income is by providing consent for the Department of Education to access federal tax information directly from the IRS. If a tax return does not reflect current income due to a significant change, or if a tax return is unavailable, borrowers may submit alternative documentation such as recent pay stubs, a letter from their employer, or other evidence of income.

Information regarding family size is also required, as it impacts the calculation of discretionary income. Borrowers must accurately report the number of individuals in their household, including themselves and any dependents they support. For married borrowers, if filing taxes jointly, the spouse’s income and loan information will be included in the calculation. If filing separately, the spouse’s income may still be required in some circumstances, so be prepared with their relevant financial details. The “Income-Driven Repayment Plan Request” form, available on the Federal Student Aid website or through loan servicers, is the primary document used for this application, containing sections that correspond to all this gathered information.

Submitting Your Application

Once all necessary information has been gathered, borrowers can proceed with submitting their application for the Pay As You Earn (PAYE) plan. The primary methods for submission include applying online through the Federal Student Aid (FSA) website or submitting the form directly to your loan servicer via mail or fax. Applying online is often the fastest and most convenient option.

When applying online, borrowers will typically log in to their StudentAid.gov account, navigate to the Income-Driven Repayment section, and select the PAYE plan. The online platform may pre-fill some personal and loan information, requiring the borrower to confirm its accuracy. Borrowers can often provide consent for the Department of Education to retrieve their federal tax information directly from the IRS, which streamlines income verification and eliminates the need for manual uploads. After reviewing all entered information and uploading any required supplemental documents, the application is electronically signed and submitted.

For those submitting by mail or fax, all supporting documentation must be sent to the borrower’s specific loan servicer. It is advisable to keep a copy of the entire submitted package for personal records.

After submission, borrowers should expect to receive a confirmation acknowledging receipt of their application. The processing time for PAYE applications can vary, but loan servicers generally process requests within a period ranging from a few weeks to several months, sometimes up to 90 days. During this processing period, the loan servicer may place the borrower’s account into an administrative forbearance, preventing payments from being due until the application is fully processed. If additional information is needed, the loan servicer will typically reach out to the borrower for clarification or further documentation.

Annual Renewal Process

Maintaining eligibility for the Pay As You Earn (PAYE) plan requires an annual renewal process, which involves recertifying income and family size, as a borrower’s financial situation can change and affect their monthly payment amount. The Department of Education and loan servicers require this regular update to ensure payments remain appropriately aligned with the borrower’s current income and household size.

Borrowers are typically notified by their loan servicer when their annual recertification is due, usually through mail or email. This notification provides instructions on how to complete the renewal process. The information required for renewal is similar to the initial application, including updated income documentation and verification of family size. Providing consent for the Department of Education to retrieve federal tax information directly from the IRS can also automate the annual recertification process, simplifying it for the borrower.

Renewal can be completed online through the Federal Student Aid website or by submitting the form via mail or fax to the loan servicer. It is important to meet the annual recertification deadline to avoid changes to the repayment terms. If a borrower fails to renew on time, their monthly payments will typically revert to the amount they would pay under the Standard Repayment Plan with a 10-year repayment period.

Additionally, if a borrower on the PAYE plan does not recertify, any unpaid interest that has accrued on their loan may be capitalized, meaning it is added to the principal balance of the loan. This can increase the total amount owed. While a borrower will generally remain on the PAYE plan even if they do not recertify, their payment amount will no longer be income-based until they provide updated documentation and re-qualify for an income-driven payment.