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Pay As You Earn Repayment (PAYE)

February 26, 2021

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For those who qualify, this plan may allow for one of the lowest possible monthly payments – offering an affordable repayment solution to graduates with student loan debt.

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How Does It Work?

  • PAYE “caps” loan payments at 10% of the household income that exceeds 150% of the federal poverty guideline based on your family size.
  • The payment amount is adjusted annually based on changes to household income and size of household.
  • Borrowers can remain in PAYE for up to 20 years. After 20 years, any remaining debt is forgiven, but is taxable.
Example of a PGY-1 Resident in Pay As You Earn (PAYE)    
Monthly Adjusted Gross Income (1) $4,940
(minus) 150% of Poverty Line (2) -$1,620 
Discretionary Income =$3,320
(multiplied by) (3)     x.10% 
Monthly PAYE Payment (4) $330

(1) Based on AAMC estimate for the 2020 first post-MD-year median stipend.
(2) Based on AAMC estimate of 2020 federal poverty guideline for a family size of one in the 48 contiguous states.
(3) Based on 2015 federal regulations.
(4) Rounded to the nearest $10.

Who is an Eligible Borrower?

  1. Must be a new borrower as of 10/1/07 AND must have received a Direct Loan Disbursement on or after 10/1/11.
  2. Must have a Partial Financial Hardship (PFH). Most medical residents exhibit this hardship.

Borrowers must submit income and family size information to their loan servicer(s) annually. Servicer(s) are the point of contact for all eligibility matters

Which Loans Qualify?

  • Direct Subsidized/Unsubsidized Loans
  • Direct PLUS Loans (does not include Direct PLUS Loans made to parents)
  • Direct Consolidation Loans
  • Perkins and LDS Loans (only if part of a Direct Consolidation)

If you have loans that are not eligible for PAYE, or if you are not an eligible borrower, Income-Based Repayment (IBR) or Revised Pay As You Earn (REPAYE) could be additional repayment plans to consider. For more information about these plans, and more repayment options, visit the Federal Student Aid website and the resources on the FIRST website.

What is the Monthly Payment Amount?

Use the AAMC’s MedLoans® Organizer and Calculator to help determine your monthly payment amount.

Benefits of Pay As You Earn

  • PAYE (and REPAYE) offer the lowest monthly payment since payment is based on 10% of your discretionary income.
  • With PAYE, the maximum payment is never higher than the Standard 10-year repayment amount, which is calculated when entering Pay As You Earn.
  • Postponement of interest capitalization occurs until a PFH no longer exists.
  • While in this plan, capitalization cannot exceed 10% of the loan balance when entering PAYE.
  • A partial interest subsidy is available for the first three years.
  • PAYE is an eligible plan for Public Service Loan Forgiveness (PSLF)

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