Towards the end of December, a new federal Pay As You Earn student loan repayment plan became available.
If you have taken a federal direct student loan in the last few years, you are entitled to PAYE. Eligibility can mean reducing not only your monthly payments, but also letting go after a certain amount of time.
Many of the 20 fundraising readers have shown a keen interest in student loan repayment strategy, and for good reason. Student loan debt in the US has exceeded the $ 1 trillion mark (and credit card debt) and is rising fast along with tuition inflation. It is turning into a national crisis.
For some, this new plan may be a pain reliever, so I’ll cover everything from the basics on the Pay As You Earn plan to a Q&A format so it can be determined if this can be a good choice for you.
What is it to pay when you make money?
Pay As You Earn is a brand new program of paying off your student loan through the Liaison Office.
This is not too different from the previous (and still existing) Revenue-On-Repayment Plan (IBR), with two key differences and major benefits:
- Payday Caps: For federal direct study loans with 10% discretionary income for eligible borrowers (IBR 15%).
- Forgiveness: There is a 20-year benefit of redundancy (10 years for public services) compared to 25 years for IBR. For eligible loans, if they are not repaid in full within 20 years, the remainder is discharged.
Why switch to pay when you make money?
Usually, student loan repayment is based on a certain number of years. Federal direct loans, for example, are ten years with a 25-year extension.
The monthly payment for the loan is then determined by paying off the amount you owe, adding it in interest, and dividing by the number of months. Having a considerable amount of student loans and not a significant income can cause financial difficulties. These standard plans are not based on your current income, but on a simple, inappropriate mathematician.
Pay As You Earn attempts to solve this problem and offers funds (with a 10% income tax cap payment) to prevent unnecessary payment problems, student loans that are too high created.
What types of loans are eligible?
Only the following direct loans are eligible for payment when you earn:
- Direct subsidized loans
- Non-specific loans
- Direct PLUS Loans for graduates or professional students
- Direct consolidation loans without basic PLUS loans to parents
This means that Direct PLUS loans for parents, direct consolidation loans that repay PLUS loans (Direct or FFEL) to parents, FFEL program loans (which are eligible for IBR), and private education loans are not eligible for Pay As You Earn.
Who is eligible to pay when you make money?
Eligibility and payments are based on the appropriate student loan balance, your state of residence, adjusted gross income according to the poverty line, tax filing status and family size. You must have “partial financial distress” to qualify. Sounds complicated, doesn’t it? The Student Aid Office has a Pay As You Earn calculator to help you figure out the exact payments.
The good news is that when you are already present, you can continue to make payments under the plan even if you no longer have a partial financial problem.
What disadvantages do you pay when you make money?
There are some:
- If you extend the terms of your payback period, you may actually be paying more interest over the life of the loan.
- You need to file documentation annually to determine the payment amount.
- You may have to pay taxes on the outstanding balance (which is still much better than paying the amounts).
Pay As You Earn Discussion
- If you are eligible, do you apply for payment when you make money? Why or why not?
- If this is unjustified, does a program like this appeal to you?