PAYE Student Loan Plan Explained

Short answer: PAYE, short for Pay As You Earn, is a federal income driven repayment plan that sets your monthly student loan payment at 10 percent of your discretionary income, and never more than your standard 10 year payment. If a balance remains after 20 years of qualifying payments, it may be forgiven. PAYE is for Direct Loans only, it has strict eligibility rules, and it is being phased out. No loan disbursed on or after July 1, 2026 can use PAYE, and the plan ends no later than July 1, 2028.

Many borrowers search for a PAYE calculator because they want one number: what would I pay each month? This guide explains how to estimate that payment by hand, with the same formula the official loan simulator at studentaid.gov uses. The worked example below is an illustration, not your real payment. Your real payment depends on your income, your family size, and your loans, so run your own figures through the loan simulator before you apply.

What the PAYE plan is

PAYE is one of the federal income driven repayment plans, known as IDR plans. Instead of setting your payment from your loan balance alone, an IDR plan sets it from your income and family size. That helps when income is low, when you are starting a career, or when your family has grown, because the payment falls when income falls and rises when income rises.

PAYE has three features that made it popular. First, the payment is 10 percent of discretionary income, the lowest percentage of any older IDR plan. Second, the payment is capped, so it can never be higher than the amount you would pay under the standard 10 year plan. Third, forgiveness comes after 20 years of qualifying payments, which is shorter than the 25 year period on some other plans.

How your PAYE payment is calculated

Your PAYE payment comes from three numbers: your adjusted gross income, your family size, and the federal poverty guideline for that family size.

Step 1: Find your adjusted gross income

Adjusted gross income, known as AGI, is the income figure on your most recent federal tax return. If your income has changed a lot since that return, for example because you lost a job or changed jobs, you can usually provide other proof of income, such as pay stubs. Your loan servicer can tell you what proof it accepts.

Step 2: Work out your discretionary income

Discretionary income has a special meaning in student loan rules, and it is different from the budgeting meaning. For PAYE, discretionary income is your adjusted gross income minus 150 percent of the federal poverty guideline for your family size.

The poverty guideline is published each year by the Department of Health and Human Services, known as HHS. For 2026, the guideline for a single person in the 48 contiguous states and Washington, D.C. is $15,960 a year, and $5,680 is added for each additional family member. For a family of four, the 2026 guideline is $33,000 a year. Alaska and Hawaii have higher guidelines, so check the figure for your state on studentaid.gov.

For a single borrower in 2026, the protected amount is 150 percent of $15,960, which is $23,940 a year. Only income above that amount counts. If your adjusted gross income is at or below the protected amount, your discretionary income is zero, and your PAYE payment can be $0 a month. A $0 payment can still count toward forgiveness, if you are enrolled and you recertify each year.

To learn more about the two meanings of this term, read our guide What Is Discretionary Income?

Step 3: Take 10 percent and divide by 12

Take 10 percent of your yearly discretionary income, then divide by 12 to get the monthly payment. Then compare it with your standard 10 year payment, which is the fixed monthly amount you would pay if you repaid the loan over 10 years. If the PAYE formula gives a higher number than the standard payment, you pay the standard amount instead. The cap stops the plan from charging a high earner more than the normal fixed payment.

Worked example: how to estimate a PAYE payment

This is an illustration with real 2026 figures for the poverty guideline. The result is not your payment, and it is not a promise of what you will pay.

Suppose a single borrower with no dependents has an adjusted gross income of $48,000 a year. The 2026 poverty guideline for one person is $15,960, so 150 percent of it is $23,940. Discretionary income is $48,000 minus $23,940, which is $24,060 a year. Ten percent of $24,060 is $2,406 a year. Divide $2,406 by 12, and the monthly PAYE payment is $200.50.

Now compare that with the standard payment. Suppose the same borrower owes $35,000 at 6 percent interest, repaid over 10 years. The standard monthly payment would be about $389 a month. The PAYE payment of $200.50 is well below the cap, so the borrower would pay $200.50 a month under PAYE in this illustration.

For a family of four with adjusted gross income of $60,000, the protected amount is 150 percent of $33,000, or $49,500, so discretionary income is $10,500 and the payment is $87.50 a month. The larger family size protects more income, so the payment is lower, even though household income is higher.

Who is eligible for PAYE

PAYE has the strictest eligibility rules of the older IDR plans. You must pass three tests, and your loans must be the right type.

The new borrower test

You must have had no outstanding balance on a Direct Loan or an FFEL Program loan when you received a Direct Loan or an FFEL loan on or after October 1, 2007. You must also have received a Direct Loan disbursement, or a Direct Consolidation Loan based on an application, on or after October 1, 2011. In plain terms, PAYE was written for people who started borrowing after those dates.

The payment test

Your calculated PAYE payment must be lower than your standard 10 year payment. This test is sometimes called partial financial hardship. Check the current wording of this test on studentaid.gov before you apply, because repayment rules are in transition.

The loan type test

PAYE is a Direct Loan plan. Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans made to graduate or professional students, and Direct Consolidation Loans can qualify, subject to the other rules. FFEL loans and Perkins Loans do not qualify in their original form, but they can become eligible if consolidated into a Direct Consolidation Loan, subject to the disbursement date rules below. Direct Parent PLUS Loans do not qualify in their original form, so parents should check the current page at studentaid.gov and talk to their servicer before consolidating. Private student loans are never eligible for any federal IDR plan.

To check whether your loans are Direct Loans or FFEL loans, log in at studentaid.gov and open your loan breakdown. Our guide What Is an FFEL Loan? explains the difference and how to check each loan separately, because you may hold both types.

The new loan rule

If you received a new loan disbursed on or after July 1, 2026, you cannot use PAYE. That includes a new Direct Consolidation Loan disbursed on or after that date. According to studentaid.gov, PAYE applies only to Direct Loans disbursed before July 1, 2026.

Forgiveness after 20 years

If a balance remains after 20 years of qualifying payments under PAYE, which is 240 monthly payments, it may be forgiven. Qualifying payments are payments made while enrolled in the plan, on time, for the full amount due, while meeting the other rules, including yearly recertification.

Forgiveness is not automatic, and it is not quick. Keep a record of your payments and check your payment count with your servicer each year. A balance forgiven under IDR may be treated as taxable income in the year it is forgiven, depending on the tax law in force at that time. Do not assume it will be tax free. Check the current tax rules when forgiveness is near, and talk to a tax professional if the amount is large.

Public Service Loan Forgiveness, known as PSLF, is separate. It forgives Direct Loans after 120 qualifying monthly payments, or 10 years, while working full time for a qualifying employer. PAYE payments can count toward PSLF if you meet the PSLF rules.

The phase out: PAYE is ending

The Saving on a Valuable Education plan, known as SAVE, has already ended. A court order ended SAVE in March 2026, and no new borrowers are enrolled in it. Do not plan around SAVE.

PAYE ends no later than July 1, 2028, according to studentaid.gov. All borrowers on PAYE must select a new repayment plan by July 1, 2028. If you do not choose, you may be moved to another plan without controlling which one you land in, so choose before the deadline.

Some servicer and adviser sources also report that PAYE enrollment closes on July 1, 2027, a year before the plan itself ends. That date is reported, not settled on the official page, so check the current IDR page at studentaid.gov before you apply.

The plan that replaces PAYE for new borrowers is the Repayment Assistance Plan, known as RAP. RAP launched on July 1, 2026, under the One Big Beautiful Bill Act, which was signed on July 4, 2025. RAP applies to Direct Loans disbursed at any time. In broad terms, RAP sets payments at 1 to 10 percent of adjusted gross income, depending on income, and forgiveness is reported as 30 years. Those figures come from draft regulations and secondary reporting, so treat them as provisional until you see them on the official page at studentaid.gov. After the transition settles, IBR and RAP are the two income driven plans expected to remain.

How to apply for PAYE, and how to stay on it

1. List every federal loan you hold, with its type, balance, interest rate, and servicer, from your account at studentaid.gov. Mark each loan Direct, FFEL, Perkins, or private.
2. Work out your discretionary income with the steps above, using your adjusted gross income and family size, and the 2026 poverty guideline of $15,960 for a single person.
3. Use the loan simulator at studentaid.gov to estimate your payment under PAYE, IBR, and RAP, using your real figures.
4. Compare the PAYE payment with your standard payment and with what you can afford each month. Note the total over the full 20 year term, not just the monthly amount.
5. Apply for IDR at studentaid.gov, using your FSA ID, and choose PAYE specifically. The Department says the online application takes most people about 10 minutes.
6. Set a yearly reminder to recertify your income and family size. IDR plans are approved for 12 months, and if you miss recertification, your payment can rise to the standard 10 year amount.
7. Check your payment count each year with your servicer, and keep a record of every payment. Before July 1, 2028, compare IBR and RAP on your own figures and choose your next plan. If you are still in school, check aid deadlines in our guide FAFSA Due Date Explained.

Common mistakes to avoid

First, do not use an old poverty guideline. The guideline changes each year, so a figure from an old article will give a wrong payment. Second, do not confuse the two meanings of discretionary income. The budgeting meaning is take home pay minus your real essential spending. The loan meaning is adjusted gross income minus 150 percent of the poverty guideline, and your real rent or food costs do not enter the calculation. Third, do not assume a low payment means the loan is shrinking. If your payment is lower than the monthly interest, your balance grows, so check your balance each year. Fourth, do not miss recertification, because a missed deadline can raise your payment to the standard amount. Fifth, do not wait until 2028 to think about the next plan.

FAQ

Can new borrowers still enroll in PAYE?

Only if their loans were disbursed before July 1, 2026 and they meet the other eligibility tests. No loan disbursed on or after July 1, 2026 can use PAYE. Some sources report enrollment closes on July 1, 2027, but that date is not settled on the official page, so check studentaid.gov before you apply.

How is a PAYE payment calculated?

Subtract 150 percent of the federal poverty guideline for your family size from your adjusted gross income. That gives discretionary income. Take 10 percent of it, divide by 12, and compare the result with your standard 10 year payment. You pay the lower of the two.

Can my PAYE payment be $0?

Yes. If your adjusted gross income is at or below 150 percent of the poverty guideline for your family size, your discretionary income is zero, so your payment can be $0. For a single borrower in 2026, that threshold is $23,940 a year. A $0 payment can still count toward forgiveness if you recertify each year and meet the other rules.

What happens to PAYE borrowers on July 1, 2028?

The plan ends no later than that date, and borrowers must select a new plan by then. The remaining income driven options are expected to be IBR and RAP. Compare both on your own figures before the deadline.

Is SAVE still an option instead of PAYE?

No. SAVE ended by court order in March 2026. If you were on SAVE, check your servicer messages and your account at studentaid.gov for your own deadline.

Conclusion

PAYE caps your federal student loan payment at 10 percent of your discretionary income, and never more than your standard 10 year payment, with forgiveness after 20 years of qualifying payments. For a single borrower in 2026, discretionary income is adjusted gross income minus $23,940, which is 150 percent of the $15,960 poverty guideline. In our illustration, an adjusted gross income of $48,000 gave a monthly PAYE payment of $200.50, compared with a standard payment of about $389 a month on a $35,000 loan at 6 percent.

PAYE is for Direct Loans disbursed before July 1, 2026, for borrowers who meet the new borrower test and the payment test. It is ending no later than July 1, 2028, and every borrower on it must choose a new plan by then. Use the loan simulator at studentaid.gov with your real figures, recertify every year, watch your balance as well as your payment, and compare IBR and RAP before the plan closes, so the move is your choice, not an automatic one.

This article is for general information and education only. It is not legal or financial advice.