1. What is PAYE?

The Pay As You Earn (PAYE) plan is an income-driven repayment plan for federal student loans that typically sets payments at 10% of discretionary income, making payments more affordable based on income and family size.

2. How Does the Calculator Work?

The calculator uses the PAYE formula:

Where:

• \( Income \) — Annual income in USD
• \( percentage \) — PAYE percentage as decimal (typically 0.10 for 10%)
• \( PMT \) — Monthly payment amount in USD

Explanation: The equation calculates annual payment as a percentage of income, then divides by 12 for monthly amount.

3. Importance of PAYE Calculation

Details: Understanding potential PAYE payments helps borrowers plan finances and choose the best repayment strategy for their student loans.

4. Using the Calculator

Tips: Enter your annual income and the PAYE percentage (typically 0.10). The calculator will estimate your monthly payment under this plan.

5. Frequently Asked Questions (FAQ)

Q1: Is PAYE always 10% of income?
A: PAYE is typically 10% of discretionary income, which is adjusted gross income minus 150% of the poverty guideline for your family size and state.

Q2: How does PAYE differ from other income-driven plans?
A: PAYE generally has the lowest payment cap (never more than 10-year Standard Plan amount) and shortest forgiveness timeline (20 years) among income-driven plans.

Q3: Who qualifies for PAYE?
A: Borrowers with eligible federal student loans who demonstrate partial financial hardship can qualify for PAYE.

Q4: Does this calculator account for family size?
A: This basic calculator uses gross income. Official calculations consider family size and discretionary income.

Q5: Are PAYE payments recalculated annually?
A: Yes, payments are recalculated each year based on your updated income and family size.