Our 2022 Pay as You Earn (PAYE) Student Loan Calculator

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Our Pay as You Earn calculator will help you:

  1. Model your annual prospective payments, outstanding balances, and forgiveness amount within the PAYE program

  2. Understand whether Pay as You Earn may be a good option for you

  3. Learn about the PAYE program, including how your payments are calculated.

What is Pay as You Earn?

Pay as You Earn (PAYE) is one of the federal government's four main income-driven repayment plans available to eligible student loan borrowers with federal debt.  PAYE works like other IDR plans in that your monthly payments are based on the income you make, rather than the balance that you owe.

The Pay as You Earn program caps your monthly federal student loan liability to 10% of your discretionary income.  After making 240 payments over 20 years, your remaining balance will be forgiven.

  • 10% of your monthly discretionary income

  • A loan term of 20 years before forgiveness is granted

Remember - the purpose of PAYE is not necessarily to pay back your entire federal student loan balance, but to make lesser payments for additional years in order to qualify for forgiveness.  In the case of PAYE, you will be eligible to have the remainder of your balance forgiven after you make those 240 payments (20 years).  

Depending on your loan situation, however, it is possible that you will end up with a zero balance before the end of your 240 payments.  In that scenario, you are debt-free!

Additionally, Pay as You Earn does count as a qualifying repayment plan that carries eligibility for Public Service Loan Forgiveness after making 120 payments.

How are your payments calculated under PAYE?

Remember, Pay as You Earn requires you to make payments worth 10% of your monthly discretionary income for 20 years to attain eligibility for forgiveness.

Like with the other IDR plans, this expected percentage of 10% will be multiplied by the difference between your adjusted gross income and 150% of the federal poverty level (divided among the twelve months).

If at any point your calculated payment amount rises above your 10-year standard payment amount, the PAYE program assures that your payments will be capped at no more than that standard amount.

Don't forget that there are also lots of ways in which you can lower your adjusted gross income to assure that you are paying as little as possible.

A male college student

Who is eligible for PAYE?

To be eligible for PAYE, you must: 

  1. Have taken out your federal loans on or after October 1, 2007

  2. Have been a "new" borrower, meaning you must have had no outstanding balance on a Direct Loan or FFEL Program loan when you received a Direct Loan or FFEL Program loan on or after Oct. 1, 2007, and you must have received a disbursement of a Direct Loan on or after Oct. 1, 2011).

  3. Demonstrate at least partial financial hardship

These requirements mean that qualifying borrowers were likely freshmen in college during the 2008/2009 academic year (or later), and were still attending college in 2011/2012, either undergraduate or graduate.

Don't worry though - if you do not qualify for PAYE, you are likely to qualify for REPAYE instead.

If you're still unsure if you qualify, you can use the Department of Education's Loan Simulator tool.

Demonstrating partial financial hardship

Part of qualifying for the PAYE program is demonstrating financial hardship.  This can be done by calculating the yearly amount due on your eligible loans under a standard repayment plan. 

 

If this amount exceeds your annual discretionary income (the difference between your income and 150% of the poverty line for your household size and state of residence), then you will qualify for the Pay as You Earn program.

Which federal loans are eligible for Pay as You Earn?

Eligible federal loan types for PAYE include the following:​

  1. Direct Subsidized Loans

  2. Direct Unsubsidized Loans

  3. Direct PLUS Loans made to graduate or professional students

  4. Direct Consolidation Loans that did not repay any PLUS Loans made to parents

If you have other types of federal student loan debt, all hope is not lost when it comes to participating in the PAYE program.  You may enroll if you have the following federal loans, as long as you consolidate first.  These loans are:

  1. FFEL PLUS Loans made to graduate or professional students

  2. FFEL Consolidation Loans that did not repay any PLUS loans made to parents

  3. Federal Perkins Loans

  4. Subsidized Federal Stafford Loans (from the FFEL Program)

  5. Unsubsidized Federal Stafford Loans (from the FFEL Program)

  6. FFEL PLUS Loans made to graduate or professional students

  7. FFEL Consolidation Loans that did not repay any PLUS loans made to parents

Keep in mind that Perkins Loans may be consolidated for inclusion in any of the four income-driven repayment plans.  You'll definitely want to make sure that you're not eligible for Perkins Loan Cancellation first, though.

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The pros and cons to PAYE

Like with all IDR and other student loan plans, there are some clear positives and negatives to using the PAYE program.

Let's start with the positives.

Pro: favorable payment terms

You will make a maximum of 20 years of payments within the PAYE program, among the most advantageous of any of the income-driven repayment plans.

Unlike REPAYE, which subjects you to either 20 or 25 years of payments depending on whether you pursued undergraduate or graduate education, all qualifying loan balances will be forgiven after 20 years (for that total of 240 monthly payments).

Pro: spousal income can be excluded

Let's say that you're married and that your spouse makes more money than you, and potentially a lot more money than you.  In this instance, filing your taxes jointly can lead the government to calculate a much higher discretionary income than you feel like you have.

Luckily, under the PAYE program, you do have the option to exclude your spouse's income if you file your taxes separately.  Now, you'll have to consult with a professional to gauge if these student loan savings are worth it, since filing separately may lead to higher tax liability.

>>>Learn more about how marriage can impact your student loan repayment

Pro: your payments will never exceed your standard amount

Another of the best features of the Pay as You Earn program is the payment cap available to those within the program.

Unlike the REPAYE program, where there is no such cap in place, your monthly payments will never exceed what they would have been under your 10-year Standard Repayment.  It's a security blanket, of sorts, in the event that your income rises by a substantial amount in a short period of time.

Next, pay attention to the PAYE negatives that you should definitely be aware of.

Con: Eligibility limited to newer borrowers

Partially due to how beneficial the program can be, the fact that eligibility is only open to those borrowers since 10/1/2007 means that PAYE is not an option for many that could use it.

And while those borrowers can absolutely pursue REPAYE, it may be a definite disappointment for those with graduate loans that wanted a 20-year path to forgiveness.

Con: The risk of interest capitalization

Should you reach the point where your monthly payments reach your 10-year standard repayment amount, which should only occur if your income rises, you do need to be aware of the fact that interest may be capitalized.  This could happen even if you recertify annually.

The silver lining here is that a maximum value of 10% of your student loan balance can be capitalized, so long as you remain on the PAYE program.

And don't forget to deduct your student loan interest on your taxes if you qualify!

Get a personalized student loan plan!

You'll receive:

  • A customized student loan plan, which compares OVER 10 different repayment strategies

  • Your expected payments, balances, and debt-free dates for each strategy

  • A live consultation with Nate

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How to apply for PAYE

Applying for the PAYE program, and any IDR plan for that matter, is a simple task.

You can complete the process via mail with your student loan servicer or online.  All you need either way is a complete income-driven repayment request form. 

Here is a step-by-step process for your reference.

  1. Locate the IDR plan request form.  If completing online, you can do this via studentaid.gov.

  2. Choose your plan/purpose, and submit the form.

  3. Remember to recertify each and every year.

Keep in mind that the income-driven repayment request form has multiple main purposes:​​

  • To apply for/enroll in an income-driven repayment form

  • To ask the federal government to enroll you in the IDR plan with the lowest payments

  • The annual recertification process required by all IDR plans

  • Changing to a different IDR plan

The second bullet can be very valuable if you're unsure what IDR plan, if any, may be right for you.

You'll want to know that your loan servicer does have the ability to put your loans into forbearance as your income-driven repayment request form is processed.  Interest will continue to accrue during this time, even though you don't need to make payments.

So if you have the money laying around, it could be a good idea to continue to make payments up until the time you transition onto your new plan.

Who is Pay as You Earn right for?

The first step is to ask yourself if one of the income-driven repayment plans is right for you.

If so, you'll need to figure out which one.  And unfortunately, the answer to this question is not as simple as just selecting the strategy that has the lowest monthly payments or the lowest projected balance paid over the term of the loan.  Remember to consider things like:

  1. The REPAYE interest subsidy

  2. What happens if your income changes in short order?

  3. The possibility that your outstanding balance could actually continue to increase

Each program is a little different, and these differences can really impact the course of your student loan repayment.

The REPAYE interest subsidy is a great example.  It can lower your total repayment costs, potentially by more than under other IDR plans.  On the flip side, REPAYE does not cap your payments based on your standard repayment amount, so there are a lot of moving pieces to be aware of here.

We have written a piece, however, on AGI minimization tips to help limit the chances of this happening.

More specifically, PAYE may be right for you if:

  1. Your income is stable and won't increase over time

  2. You have graduate school debt

  3. You're single or married to a spouse with student loan debt

Worried about making a mistake?  No problem!  Schedule a live student loan planning session with Nate.

Your income is stable and won't increase much over time

By design, income-driven repayment is designed for those with high debt balances and lower incomes.  So if you're working in a role, industry, or field where you're not going to see consistently large raises, PAYE is very much a program that you should consider.

And if you have kids along the way, your monthly payments may actually decrease over the course of the 20 years.

You have graduate school debt

Since those that went to graduate school oftentimes have the highest debt balances, PAYE could be a great option, since the program carries very favorable repayment terms.  With an expected payment of only 10% of your discretionary income and a term of 20 years, PAYE can be a great way to handle your large student loan balance without making enormous payments.

You're single or married to a spouse with student loan debt

The Pay as You Earn program does consider your spouse's income and student loan situation if you are married.  And if you're single, only your income will count for the purpose of calculating your monthly payments.

But if you are married and your spouse also has student debt, it is both easier to qualify for the program, and may come with lower payments than you're expecting to make.

Pay as You Earn calculator FAQs

What happens if you don't qualify for PAYE?

To qualify for the Pay as You Earn program, you need to be a "new" borrower, with loans dispensed on or after October 1, 2007.

So if you don't qualify for PAYE, you'll probably find the closest program to be Revised Pay as You Earn.  And while you'll find that the programs are not identical, both the PAYE and REPAYE programs cap your monthly payments at 10% of your monthly discretionary income.

Is PAYE student loan forgiveness taxable?

Generally, forgiveness under the Pay as You Earn program is taxable in the year of forgiveness.  Furthermore, it is treated as taxable income, meaning that it could impact both your federal and state tax brackets.

However, there is active legislation out there that has waived this through the beginning of 2026.   But whether this gets extended or not is unknown at this time.

Is PAYE not an option for you?

Is PAYE not an option for you?  No problem!  You have a plethora of other options available to you, ranging from forgiveness/loan dischargement programs, to other IDR plans, to other strategies altogether!

Our student loan help will help you find the perfect strategy for your student loan repayment.  That's a guarantee.

About The Student Debt Destroyer

The Student Debt Destroyer Roadmap works directly with Americans nationwide, creating customized student loan plans for your situation and then talking through them via live consultations.