Pay As You Earn Repayment Plan
The Pay As You Earn Repayment Plan makes repaying your William D. Ford Direct Loans more manageable by basing your monthly payment amount on your annual income. You must meet certain eligibility requirement to utilize this plan. As with other repayment plans that extend your repayment term, your overall cost of borrowing will be higher under this plan than under the Standard Repayment Plan which provides for fixed monthly payments over a 10 year repayment period.
Eligibility for Pay As You Earn Repayment
To qualify for Pay As You Earn, you must have a partial financial hardship. A partial financial hardship occurs when the monthly amount you would be required to pay on your eligible federal student loans under the Standard Repayment Plan is greather than the monthly amount you would be required to repay under Pay As You Earn. Eligible student loans include all of your William D. Ford Federal Direct Loan Program loans (Direct Loans) that qualify for Pay As You Earn. FFEL Program loans cannot be included under Pay As You Earn, but the following types of FFEL Program loans count toward determining whether you have a partial financial hardship:
- Subsidized and Unsubsidized Federal Stafford Loans
- Federal PLUS Loans for Graduate or Professional Students
- Federal Consolidation Loans that weren't used to repay PLUS Loans for Parents
In addition, you must be a new borrower as of October 1, 2007, and have received a disbursement of a Direct Loan on or after October 1, 2011. To be considered a "new borrower" you must not have had an outstanding balance on a FFEL or Direct Loan as of October 1, 2007. You are also a new borrower if you did not have a balance on FFEL or Direct Loan when you received a new loan on or after October 1, 2007.
Your monthly payment may vary each year based on your income and family size. As long as you met the initial qualification for Pay As You Earn, you can keep making payments under the plan even you no longer have a partial financial hardship.
Eligible Federal Loans
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans for Graduate or Professional Students
- Direct Consolidation Loans that do not include Direct for FFEL PLUS Loans for Parents
Private student loans, FFEL loans, Direct PLUS for Parents and Direct Consolidation Loans that repaid Direct or FFEL PLUS Loans for parents are not eligible for this repayment plan.
Your monthly payments will be based on your annual income, family size and are adjusted each year based on changes in income and family size. Your payment will not be greater than the amount your would pay under the Standard Repayment Plan. The repayment period is 20 years.
Choosing the best repayment plan for your particular situation can be a bit tricky. We always recommend talking to your loan servicer about your options before you choose a plan. Keep in mind that the longer you take to repay your loan, the more the loan will cost you overall.
Benefits of Pay As You Earn Repayment
There are several advantages to borrowers repaying under the Pay As You Earn Repayment Plan. They include:
- Payments based on earnings. Your payment is based on what you earn. Your payment will be less than what your would pay under the Standard Repayment Plan
- Interest payment benefit. If you monthly Pay As You Earn payment doesn't cover the accrued interest on your loans each month, the government will pay your unpaid interest on your Direct Subsidized loans or the Subsidized potion of your Direct Consolidation loan for up to three years from when you entered repayment under Pay As You Earn
- Capitalization limit. During the period in which you have a partial financial hardship, interest that you incur in excess of your payment will not be added back to your principal even if you are in deferment or forbearance. Once your period of partial financial hardship ends, interest in excess of your payment will be added to your loan balance. However, the total amount capitalized outside of a period of partial financial hardship will not exceed 10% of your original loan balance when you began paying under the Pay As You Earn Plan.
- 25-year cancellation. If repay your loan for 25 years under Pay As You Earn and meet certain other conditions and still have a remaining balance, that balance will be cancelled.
- Public Service Loan Forgiveness. If you make on-time, full monthly payments whill working full-time in a public service job, the payments you make will be counted toward the 120 monthly payments required under the Public Service Loan Forgiveness Program. For more information see the Department of Education's page at: Public Service Student Loan Forgiveness
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