8 Student Loan Repayment Plans Explained

6. Pay As You Earn (PAYE)

What it is: PAYE caps payments at 10% of discretionary income for eligible borrowers and includes a forgiveness pathway after a set period of qualifying payments. Who it fits: Recent borrowers with low-to-moderate income who meet specific date-of-loan and eligibility rules. How payments work: Payments are recalculated annually using income and family size; changes in income change monthly amounts. Pros: Strong affordability protections for those who qualify; potential forgiveness can help long-term finances. Cons: Strict eligibility rules mean not everyone qualifies; consolidating loans can change eligibility. How to decide: If you’re newly out of school and expect modest income at first, PAYE can be a strong option. Action steps: Confirm eligibility dates and apply through your servicer; keep annual documentation current.