The Pay As You Earn student loan repayment plan caps your monthly federal student loan payment at 10% of your discretionary income and forgives any remaining balance after 20 years of qualifying payments. It’s a federal income-driven plan under the William D. Ford Direct Loan Program, and access to it now depends heavily on when your loans were disbursed. If your eligible loans were disbursed before July 1, 2026, you can still enroll. If any new Direct Loan or Direct Consolidation Loan is disbursed to you on or after that date, PAYE is closed to you permanently, even if you were already on it.1Federal Student Aid. One Big Beautiful Bill Act Updates
The July 1, 2026 Disbursement Cutoff
Under the One Big Beautiful Bill Act, PAYE remains open to borrowers whose eligible loans were disbursed before July 1, 2026, and those borrowers can enroll on or after that date even if they were never on the plan before. A disbursement on a new Direct Loan or a new Direct Consolidation Loan on or after July 1, 2026, ends PAYE eligibility.1Federal Student Aid. One Big Beautiful Bill Act Updates
This matters most if you hold FFEL loans or other loans that aren’t already Direct Loans. To make them eligible for PAYE, you have to consolidate them into a Direct Consolidation Loan, and that consolidation loan must be disbursed no later than June 30, 2026. Miss that window and consolidation itself becomes the thing that shuts the door.
Who Qualifies for PAYE
Two eligibility tests apply on top of the disbursement rule: the “new borrower” test and a partial financial hardship.
New Borrower Status
You qualify as a new borrower for PAYE if both of these are true:
- You had no outstanding balance on any Direct Loan or Federal Family Education Loan (FFEL) as of October 1, 2007, or you had no outstanding balance on the date you received a new loan after October 1, 2007.
- You received at least one disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, Direct PLUS Loan made to a graduate or professional student, or a qualifying Direct Consolidation Loan on or after October 1, 2011.2eCFR. 34 CFR 685.209
Older loans you paid off before taking out new post-2007 loans don’t disqualify you.
Partial Financial Hardship
You must also have a partial financial hardship, which means your calculated PAYE payment would be less than what you’d owe under the standard 10-year plan. The Department of Education makes that comparison using 10% of your discretionary income against the standard payment on your loan balance and interest rate at the time you entered repayment or selected PAYE, whichever balance is higher.2eCFR. 34 CFR 685.209 Borrowers with substantial debt relative to income typically clear this easily.
Which Loans Are Eligible
PAYE covers Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans made to graduate or professional students. Direct Consolidation Loans qualify only if they include no Parent PLUS Loans, whether from the Direct or FFEL programs. Parent PLUS borrowers cannot use PAYE at all.3Edfinancial Services. Pay As You Earn (PAYE)
How Your Monthly Payment Is Calculated
Your PAYE payment is 10% of your discretionary income, divided by 12. Discretionary income under the regulation is your adjusted gross income (AGI) minus 150% of the federal poverty guideline for your family size and location.3Edfinancial Services. Pay As You Earn (PAYE)
The 2026 poverty guideline for a single person in the 48 contiguous states is $15,960.4U.S. Department of Health and Human Services. 2026 Poverty Guidelines For a single borrower earning $40,000, the math works out like this:
- 150% of the poverty guideline: $15,960 × 1.5 = $23,940
- Discretionary income: $40,000 − $23,940 = $16,060
- Annual payment: $16,060 × 10% = $1,606
- Monthly payment: about $134
If the formula produces zero or less, your payment is $0 for the year, and those months still count toward your 20-year forgiveness timeline.
The Standard-Plan Cap
Your PAYE payment will never exceed what you’d pay under the standard 10-year repayment plan, even if your income rises sharply. If your income later drops, your servicer recalculates at your next annual recertification, and you can also request an earlier recertification mid-year if your income falls.5Federal Student Aid. Income-Driven Repayment Plans
Interest Subsidy on Subsidized Loans
When your PAYE payment doesn’t cover the interest accruing on your subsidized loans, the federal government pays 100% of the remaining interest for the first three consecutive years on the plan.3Edfinancial Services. Pay As You Earn (PAYE) Unsubsidized loans receive no such subsidy, so unpaid interest on those accrues from the start.
How Marriage Affects Your PAYE Payment
If you’re married, your tax filing status controls which income the calculation uses. File jointly and the Department uses combined household income. File separately and only your individual income counts.6Federal Student Aid. 4 Things to Know About Marriage and Student Loan Debt
Filing separately can drop the PAYE payment considerably when one spouse earns much more, but that filing status often raises your total tax bill and knocks out certain credits and deductions. Run the numbers both ways before you commit. When you do file jointly, your PAYE payment is prorated based on your share of the couple’s combined federal student loan debt.
Applying for PAYE
The quickest route is the Income-Driven Repayment (IDR) Plan Request at StudentAid.gov using your FSA ID. The online form lets you import your tax information through the IRS Data Retrieval Tool, which cuts down on errors.3Edfinancial Services. Pay As You Earn (PAYE)
The form asks for your Social Security number, current address and contact information, AGI from your most recent federal tax return, family size (including dependents who receive more than half their support from you), and marital status.7Federal Student Aid. Income-Driven Repayment (IDR) Plan Request If your income has dropped since your last return, you can submit recent pay stubs or an employer letter instead of relying on the tax data.
Your servicer reviews the request and typically places your loans in administrative forbearance during processing, which usually takes several weeks. A confirmation notice follows once your new schedule is set.
Annual Recertification
Staying on PAYE requires updating your income and family size every 12 months.8Federal Student Aid. Top FAQs About Income-Driven Repayment Plans Federal Student Aid suggests submitting between 30 and 90 days before your recertification date. Your servicer should send a reminder, but put the date on your own calendar too.
Miss the deadline and your monthly payment jumps to the 10-year standard amount. You stay enrolled and can return to income-based payments once you submit updated information, but the gap at the higher payment can hurt. Treat the date like a tax deadline.
Forgiveness After 20 Years
Any balance still outstanding after 20 years of qualifying PAYE payments is forgiven.3Edfinancial Services. Pay As You Earn (PAYE) The clock starts when you begin repayment under the plan, and months where your calculated payment was $0 count toward that total.
PAYE and Public Service Loan Forgiveness
If you work full-time for a qualifying public service employer, PAYE payments count toward the 120 monthly payments needed for Public Service Loan Forgiveness. That’s a 10-year path rather than 20, and PSLF forgiveness is tax-free. Even after your income rises to the point that PAYE payments hit the standard-plan cap, those payments still count for PSLF as long as you remain on PAYE.9Federal Student Aid. Public Service Loan Forgiveness FAQs
Taxes on Forgiven Balances in 2026 and After
The American Rescue Plan Act’s exclusion of federal student loan forgiveness from taxable income applied only to loans forgiven between January 1, 2021, and December 31, 2025. Beginning in 2026, a PAYE balance forgiven at the 20-year mark is generally treated as cancellation of debt income on your federal tax return.10Taxpayer Advocate Service. What to Know about Student Loan Forgiveness and Your Taxes Your lender will issue a Form 1099-C reporting the forgiven amount, and you’ll report it on the return for the year forgiveness was processed. For a large remaining balance, that can be a substantial one-time tax bill.
Two exceptions matter:
- PSLF forgiveness is not taxable, regardless of when it occurs.10Taxpayer Advocate Service. What to Know about Student Loan Forgiveness and Your Taxes
- The insolvency exclusion under 26 USC 108 lets you exclude forgiven debt from income to the extent your total liabilities exceeded the fair market value of your total assets at the time of forgiveness. You claim it on IRS Form 982.11Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
For many borrowers approaching year 20, the student loan debt itself pushes them into insolvency territory at the moment of forgiveness, making the exclusion available.12Internal Revenue Service. What if I Am Insolvent Some states also tax forgiven debt separately, so check how your state treats cancellation of debt income before the forgiveness year arrives.