Pay As You Earn Application Process

The new Pay As You Earn student loan repayment plan is now available.  The problem you may have is that it is currently not a repayment choice in the direct consolidation repayment options.  At this time the comparison of monthly payment is not available either.  The savings could be significant especially if you have not been able to secure a higher paying job.

We have described the benefits to this plan in another blog called “Introduction of Pay As You Earn Student Loan Repayment Plan”.  Listed below is a sample comparison of the loan repayment amounts and how the PAYE repayment plan can work to your advantage.

In our example you have a student with debt that qualifies.  Total federal student loans equal $50,000 at 6.8%.  This person also has a job paying $38,000 annually.  The payment listed below are rounded per month amounts.  Listed below are the repayment options:

  • Standard 10 year payment                     $ 575
  • Extended 25 year payment                    $ 347
  • Income Based Repayment                     $ 265
  • Pay As You Earn                                      $ 177

Selecting the lowest payment is not always the best solution.  Many times when you use the Income Based methods you have negative amortization.  This means your payment is not covering the interest of the loan and this shortfall will be added to the loan balance.

There are many factors in determining the best student loan repayment method for you.  Your income growth, types of loans, employer, and other factors need to be considered in select the best repayment process.  One of the biggest mistakes in this process is thinking short term.  Depending on your goals a long term plan should be developed to address other issues such as marriage or home purchase and the impact it will have on your student loan debt.

As stated earlier this option is not available on the direct consolidation website.  You will need to address this with your student loan servicer once the loan consolidation is completed.  If you have already started your repayment you may want to contact your current loan servicer and see if you qualify.

There is a videos on REPAY411 Resource page regarding the Pay As You Earn Plan and other information on the entire student loan repayment process.  If you need affordable professionsal help please visit our service page.

Written by