December 13, 2018

Expansion of PAYE Income Based Repayment Rules Not Likely to have much Impact

PAYE rules expandedYou may have heard that on June 9, 2014, President Obama signed an executive order expanding the PAYE (Pay-As-You-Earn) program. According to the President, this action is intended to “make student debt more affordable and manageable to repay.” But will this executive order really have much impact?

The PAYE program is one of several income based repayment options available to student loan borrowers. It uses a formula whereby a student loan borrower can modify the repayment terms of his loan and pay back that loan using a payment that does not exceed 10% of the borrower’s discretionary income. After 20 years of payments, any remaining indebtedness will be forgiven.

Currently PAYE is only available to new borrowers – students who graduated prior to 2013 do not qualify. Older graduates have other loan modification options available like the income based repayment plan which is similar to PAYE but caps payments at 15% of discretionary income and forgives the balance after 25 years of payment.

Under Obama’s executive order, PAYE will be available to all student loan borrowers, not just members of the class of 2013 and future graduates. The new PAYE eligibility begins in December, 2015, so older graduates will have to wait at least a year and a half to take advantage of these new rules. [Read more…]