Is PAYE Going Away? Deadlines, Costs, and Where to Go Next

Yes, PAYE is going away. The One Big Beautiful Bill Act phases out the Pay As You Earn plan on a fixed schedule: new enrollments stop on July 1, 2027, and the plan terminates entirely on July 1, 2028. A third cutoff on July 1, 2026 blocks anyone with a new federal loan disbursed on or after that date from using PAYE at all, whether they were already enrolled or not.¹ If you’re on PAYE now, you can stay until 2028. If you want to get on, your window is narrow and conditional.

The Three Deadlines That End PAYE

Three dates control the wind-down, and each one closes a different door.

July 1, 2026. Any new federal loan or new consolidation loan disbursed on or after this date permanently disqualifies you from PAYE. This applies even if you’re already enrolled: taking out new federal debt after this date kicks you off the plan.¹

July 1, 2027. No new enrollments in PAYE will be accepted on or after this date, regardless of when your loans were originally disbursed.²

July 1, 2028. PAYE is eliminated. Any borrower still enrolled will be moved to another income-driven plan.¹

An earlier regulation under 34 CFR § 685.209 had closed PAYE to new enrollees as of July 1, 2024, but the One Big Beautiful Bill Act effectively reopened it for borrowers whose qualifying loans were disbursed before July 1, 2026.³

If You’re Already Enrolled in PAYE

You can stay on the plan through July 1, 2028. Your payment remains 10 percent of your discretionary income, and your monthly amount will never exceed what you would owe under the standard 10-year plan.²

Two things can knock you off early. The first is missing annual recertification. Each year you have to update your income and family size with your loan servicer by the deadline shown on your account, and once you leave PAYE for any reason you cannot re-enroll.³ The second is new borrowing. If any new federal loan or consolidation loan is disbursed to you on or after July 1, 2026, you lose PAYE access immediately.¹

Because leaving is permanent, weigh how close you are to PAYE’s 20-year forgiveness threshold before making any change that could push you off the plan.³

If You Want to Enroll Before the Cutoff

Enrollment is still open, but three conditions have to line up.

Loan Timing

Your eligible loans must have been taken out before July 1, 2026. Only Direct Loans qualify. Federal Family Education Loans and Perkins Loans are not eligible unless you first consolidate them into a Direct Consolidation Loan, and that consolidation loan has to be disbursed no later than June 30, 2026.¹

Partial Financial Hardship

You have to demonstrate a partial financial hardship when you first enter the plan. You meet the test when your calculated PAYE payment would be less than what you’d owe under the standard 10-year plan. The comparison uses the greater of your total loan balance when your loans first entered repayment or your balance at the time you apply.⁴ Borrowers with small balances or high incomes often don’t qualify, because their income-driven payment already meets or exceeds the standard amount.

New Borrower Status

PAYE requires you to be a “new borrower” under a specific federal definition. You qualify if you had no outstanding balance on a Direct Loan or FFEL loan as of October 1, 2007, and received a new Direct Loan disbursement on or after October 1, 2011. Older loan balances predating those dates disqualify you.³

What Leaving PAYE Costs You in Interest

When you leave PAYE, unpaid interest that has been accruing may capitalize, meaning it gets added to your principal balance and you start paying interest on the larger amount. Capitalization is triggered when you voluntarily switch to a different plan, when you fail to recertify by the annual deadline, or when you recertify but no longer qualify for a reduced payment.⁵

You can avoid this by paying off accrued interest before any triggering event. If you’re thinking about switching plans, check your account for accrued interest first and calculate whether paying it down would save you money over the remaining life of the loan.

Where PAYE Borrowers Go Next

When PAYE ends, Income-Based Repayment (IBR) becomes the primary income-driven option. The One Big Beautiful Bill Act made IBR easier to reach by removing the partial financial hardship requirement.¹

Your IBR terms depend on when you first borrowed:

If you borrowed on or after July 1, 2014, payments equal 10 percent of discretionary income, with forgiveness after 20 years of qualifying payments.¹
If you borrowed before July 1, 2014, payments equal 15 percent of discretionary income, with forgiveness after 25 years.

For borrowers who first took out loans on or after July 1, 2014, IBR’s terms are functionally identical to PAYE’s. Both use 10 percent of discretionary income, both offer forgiveness after 20 years, and both cap monthly payments at the 10-year standard amount. The practical difference is that IBR no longer requires you to prove partial financial hardship to enroll.¹

Borrowers with loans disbursed before July 1, 2026 keep access to IBR after that date, but any new loan or consolidation disbursement on or after July 1, 2026 cuts off access to the current version.¹

SAVE is not an alternative. Federal courts have blocked implementation of the Saving on a Valuable Education plan, and the Department of Education has proposed a settlement that would deny all pending applications, block new enrollment, and move current SAVE borrowers to other plans. SAVE borrowers are currently in a general forbearance in which no payments are required, but interest has been accruing since August 1, 2025, and the time does not count toward Public Service Loan Forgiveness or income-driven forgiveness.⁶ The One Big Beautiful Bill Act formally terminates SAVE alongside PAYE and Income-Contingent Repayment on July 1, 2028.⁷

Taxes on Forgiven Balances After 2025

If your remaining balance is forgiven after 20 years on PAYE or IBR, the forgiven amount may count as taxable income on your federal return. The American Rescue Plan Act temporarily excluded forgiven student loan debt from federal tax, but that exclusion covered only discharges between December 31, 2020 and January 1, 2026. For forgiveness that occurs in 2026 or later, standard tax rules apply.⁸

A $50,000 forgiveness gets added to your gross income for that year and can push you into a higher tax bracket. Some states also tax forgiven student loan debt, though treatment varies.

The insolvency exclusion may help. If your total liabilities exceeded the fair market value of all your assets immediately before the forgiveness, you can exclude the forgiven amount from income up to the amount by which you were insolvent, using Form 982. Assets in this calculation include retirement accounts, home equity, vehicles, and collateral property; liabilities include all debts. If you were insolvent by $30,000 and $50,000 was forgiven, $30,000 is excluded and $20,000 remains taxable.⁹

1
Federal Student Aid. One Big Beautiful Bill Act Updates
2
Federal Student Aid. Pay As You Earn (PAYE) Plan
3
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans
4
Federal Student Aid. Partial Financial Hardship
5
Nelnet – Federal Student Aid. Interest Capitalization
6
Federal Student Aid. IDR Plan Court Actions – Impact on Borrowers
7
U.S. Department of Education. U.S. Department of Education Announces Agreement with Missouri to End Biden Administrations Illegal SAVE Plan
8
Federal Student Aid. How Will a Student Loan Payment Count Adjustment Affect My Taxes
9
IRS. Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments