President Obama’s new federal “Pay As You Earn” (PAYE) repayment program is now available. It is a great program: similar to Income-Based Repayment but with significantly lower monthly payments (based on 10% of discretionary income, instead of 15%) and a shorter repayment period (20 years, instead of 25) before loan forgiveness kicks in. It has strict eligibility requirements, however, that makes many borrowers ineligible:
- PAYE only is available for Direct loans
- You must have had no outstanding federal student loans as of October 1, 2007 AND
- You must have taken out a new federal student loan on or after October 1, 2011
The U.S. Department of Education has released a new Repayment Plan Selection form making PAYE an available option: click here to see the new form.
I also recently did a “Q&A” with Kiplinger’s Personal Finance magazine about the new program: click here to read the article.