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  • Writer's pictureNathan Zarcaro

[2023] Pay as You Earn Calculator: Save Thousands on Your Student Loans

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Our PAYE student loan calculator

Our Pay as You Earn calculator will help you:

  1. Check your expected monthly payments

  2. Track your outstanding balances and projected forgiveness balance

  3. Understand whether Pay as You Earn is worth it for you

PAYE is a complex program with many variables. Our student loan calculator will help you predict your future payments, even as variables like your location, income, and family size change. By letting you set all of the assumptions, the calculator will help you to model how your payments could change as your life changes.


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How does the calculator work?

Our calculator is simple and easy to use. Get started by:

  • Answering a few questions about your federal/private student loans

  • Providing your income

  • Let us know whether you plan to start/grow a family, along with projected years

Then, explore your anticipated payment amounts, forgiven balances, and expected debt-free year for almost 10 different student loan strategies.

It's that simple.



What is Pay as You Earn (PAYE)?

Pay as You Earn (PAYE) is one of the federal government's income-driven repayment plans. The PAYE program allows qualifying borrowers to lower their monthly payments using a formula that takes into account each borrower's area of residence and household size.

Originally launched by the Obama Administration in 2012, PAYE caps borrower payments at 10% of their monthly discretionary income, as calculated by the federal government. These reduced monthly payments are then made for a period of 20 years.

After this, the remainder of a borrower's qualifying debt is forgiven.

PAYE eligibility

Eligibility for the Pay as You Earn program depends on:


  1. Qualifying federal loan types

  2. Meeting other requirements

1. Qualifying federal loan types​

Eligible federal loan types for PAYE include:

  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

Borrowers with other types of federal loans still may qualify if they consolidate first.


These loan types include:


  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.



2. Other PAYE eligibility requirements

Additional PAYE requirements are as follows. 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 (if your payments are greater than 10% of the difference between your AGI and 150% of the poverty line)

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 SAVE, which may be more advantageous for you anyway.

Monthly payment calculation

Your qualifying payments under the Pay as You Earn program requires you to make payments worth 10% of your monthly discretionary income for 20 years to attain eligibility for forgiveness.

Your discretionary income, as defined by the federal government in the PAYE program, is the monthly difference between your monthly income and 150% of the poverty line given your area of residence and household size. Poverty line data is calculated annually by the U.S. Department of Health and Human Services.

Given the complexities of the calculation, it is possible that your expected payments may rise above your 10-year standard payment amount, but the PAYE program assures that your payments will be capped at no more than that standard amount.

Once this poverty data is published, the PAYE formula will calculate your payments, based upon your prior year's income. As a reminder, those participating in any IDR plan should recertify their income and status annually.

Don't worry - our PAYE student loan calculator will handle all of this for you. We'll even build in assumptions for inflation and your future income growth to predict your payments down the line.



PAYE pros and cons

Like all other student loan strategies out there, there are a number of pros and cons to the Pay as You Earn program. Let's first visit our favorite parts of the program:

1. Favorable repayment terms

If you participate in the PAYE program, you will be debt-free in 20 years, which is among the most advantageous timeline of all of the income-driven repayment plans. REPAYE, for the sake of comparison, requires some borrowers to make payments for 25 years if you pursued graduate level education, but this caveat is not in place with the PAYE program.

2. Capped monthly payments

An underrated part of IDR plans is that your payments are capped. No matter what happens to your income in the future, you will not pay more monthly than your original standard repayment amount.

And even if your income does grow substantially in the future, causing your payments to climb, you'll likely just end up debt-free sooner than the 20 years of PAYE payments.

This flexibility essentially assures a win-win experience for borrowers.

3. Option to exclude spousal income

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.

All of this said, not everything is perfect with the PAYE program. Here are some things that could help make it stronger.

1. Only "newer" borrowers qualify

You'll remember that not all federal borrowers qualify for Pay as You Earn. And beyond needing to have qualifying loan types, you'll also need to have taken those loans out on or after 10/1/2007. This, unfortunately, means that struggling borrowers that attended college before these dates will need to find another program to better suit them.

REPAYE is the most popular alternative, and while our calculator does account for this program, it unfortunately will eliminate the possibility of a 20-year path to forgiveness for those with graduate loans.

2. The possibility 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.

3. Taxable consequences

Please keep reading for more information about the income-driven repayment tax bomb.

Avoid the PAYE tax bomb

Before you say "yes" to income-driven repayment, it is integral that you understand any future tax implications of your decision today. What often goes unspoken is the potential for income-driven repayment plans to generate what is known as a "tax bomb."

Here's what this means. Under the IDR plans, the United States federal government reserves the right to tax you on your forgiveness balance. To make things worse, your forgiveness can actually be taxed as income, which could be enough to push you up the ladder of federal tax rates.

So, if you make $60,000 and receive $60,000 in student loan forgiveness via Pay as You Earn, your taxable income in the year of forgiveness will actually shoot up to $120,000.

In other words, you'll owe thousands of dollars in additional taxes, an expense that you absolutely need to prepare for.

And given that some borrowers' reduced PAYE payments will not cover the interest that accrues each month, it is not unheard of to hear of borrowers receiving $100,000, $200,000, or even more in forgiveness.

Now, the good news.

The federal government is not currently taxing forgiveness received via income-driven repayment plans through at least the end of 2025. What happens after this is anybody's best guess, as tax policy can be highly dependent on political representation in Washington D.C at any given time.

Our calculator will project your final forgiveness balance so that you can make the best decision possible.

How to apply for PAYE

Though this page contains information about our student loan calculator, it is also important that we touch upon the process by which you can apply to join the PAYE program.

Applying to join the PAYE program is actually really simple to do, and you can apply via mail with your student loan servicer, or online if that is easier for you. Either way, all you need to do is to complete an 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 PAYE 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.

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.

1. Stable income

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.

2. Those with 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.

3. Those that are single or have a spouse with student loans

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.

PAYE calculator FAQs

1. What happens if you don't qualify for PAYE?


Remember - 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.

2. Is 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.

About Nathan Zarcaro

Nathan Zarcaro is the founder of The Student Debt Destroyer and is passionate about personal finance related causes.  A 2018 graduate of Providence College's Liberal Arts Honors Program, Nathan studied Finance, and worked for one of the world's largest asset management firms before starting his own business.  In his free time, Nathan enjoys playing golf and traveling with his wife Brigid.

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