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PAYE (Pay As You Earn)
Definition
An income-driven repayment plan capping payments at 10% of discretionary income with forgiveness after 20 years.
Explanation
PAYE is an income-driven repayment plan for federal student loans. Your monthly payment is capped at 10% of discretionary income (income above 150% of the poverty line). After 20 years of qualifying payments, remaining balance is forgiven.
Available to borrowers who received their first loan after October 1, 2007. Your payment never exceeds the standard 10-year plan amount.
Example
Single borrower earning $50,000 with $40,000 in loans: PAYE ≈ $300/month vs $580 on standard plan. After 20 years, remaining balance forgiven.