Sometimes the right loan repayment plan can totally revamp your ability to pay back your student loans and get rid of your student loan debt. Although you are required to select a repayment plan when you initiate repaying your student loan, you may change the repayment plan any time by contacting the borrower or by consolidating multiple student loans.
There are many repayment plans available for federal student loans such as standard plan, extended plan, graduated plan, income-driven plans, income-sensitive plans, and pay-as-you-earn plan. The selection of repayment plan depends on your income, type of loan, and personal preferences.
Pay As You Earn (PAYE) Repayment Plan
The Pay as You Earn or PAYE repayment plan was introduced in 2011 in order to help 1.6 million students deal with their student loan debts. The PAYE repayment plan makes the repayment process affordable to the borrowers. Under the PAYE repayment plan, the borrower pays back the loan in monthly installments that is based on their income and family size.
How does it Work?
The PAYE repayment plan is an income-based repayment plan that offers the lowest monthly installment amount based on the borrower’s income, family size, and the state of residency. It caps the monthly payments at 10 percent of discretionary income of the borrower. After 20 years of qualifying loan repayments, any remaining balance on the student loans is forgiven under the Pay as You Earn repayment plan. For borrowers working in a public service organization, student loans are forgiven after 10 years of qualifying payments.
Eligibility Requirements for PAYE Repayment Plan
The PAYE repayment plan is more advantageous to the borrowers as compared to other repayment plans. Therefore, there are strict eligibility requirements in order to qualify for the PAYE repayment plan.
The following loans are eligible for pay as you earn repayment plan:\
- Unsubsidized and subsidized Direct loans
- Direct PLUS loans made to professional students or graduates
- Direct Consolidation loans that must not include any PLUS loan made to students’ parents
The following loans are eligible only if they are consolidated into a Direct Consolidation loan:
- Unsubsidized and subsidized federal Stafford loans
- FFEL PLUS loans given to professional students or graduates
- Federal Perkins Loans
- FFEL Consolidation loans that do not include any PLUS loan given to parents
Other Eligibility Requirements
- The borrower should not have any significant balance on a Direct or FFEL loan as of October 1st, 2007.
- The borrower should not have any amount in balance on a Direct of FFEL loan when they get a new Direct loan or an FFEL loan on or subsequent to October 1st, 2007.
- The borrower must have gotten a payment of a Direct PLUS loan or a Direct subsidized or unsubsidized loan or a Direct Consolidation loan on or subsequent to October 1st, 2011.
- The borrower’s student loan debt ought to be high relative to their income.
Why You Should Opt for Pay as You Earn Repayment Plan
PAYE repayment plan offers several benefits to the students who have a low income and high student loan debt. The monthly payments made under PAYE repayment plan is based on your income and it takes the size of your family into consideration as well. The amount of monthly installments is usually smaller as compared to other income-based repayment plans.
Under the PAYE repayment plan, student loans are forgiven earlier than under other repayment plans. The unpaid interest is also partially subsidized by the government. However, you are required to pay more interest overall as the repayment term is longer as compared to the standard repayment plan. Also, the eligibility requirements are strict and you cannot use this repayment plan for federal non-direct student loans.
How TurboDocs Can Help You?
The Pay as You Earn Repayment plan is one of the most popular student aid programs. It is designed for students who recently took out a federal student loan, but do not have enough monthly income to cover the monthly loan installments. The PAYE repayment plan offers more affordable loan repayment options as compared to the other income-based traditional loan repayment plans.
The PAYE repayment plan is very useful to students, but it requires complex documentation work every year. The qualified applicants must provide updated information of their income and family size in order to prevent the interest rate from capitalizing. TurboDocs is an organization that makes the loan repayment process easier for students. Our expert team eases your burden by helping you in selecting the best loan repayment plan and analyzing its pros and cons.
If you want to get up-to-date information on all loan forgiveness programs and loan repayment plans contact us by filling our online contact form or call us at (855) 782-0744.