Starting
December 2015 the new Pay As You Earn (PAYE) program is planned to be extended
to all federal direct student loans. http://www.washingtonpost.com/blogs/post-politics/wp/2014/06/09/obama-to-sign-executive-order-capping-student-loan-payments/.
PAYE is a special payment plan that is currently only available for student loan borrowers who took a federal loan out no
earlier than Fall 2007 and also took a new loan out in Fall 2011. The program has thus been inaccessible to the majority of borrowers.
PAYE caps
student loan payments at 10 percent of their “discretionary income.” The
next-best program, which the majority of low-income borrowers use, is the
Income-Based Repayment Plan (IBR), which caps payments at 15 percent of
discretionary income. This results in higher required payments under IBR as
compared to PAYE.
Other
benefits of PAYE include forgiveness after 20 years of qualifying payments (as
compared to 25 for IBR), interest payment benefits, and a limitation on the
capitalization of interest. https://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn
