How It Works And What Happens When It Ends In 2028
Wednesday, September 30, 2026
Pay As You Earn (PAYE) is a federal income-driven repayment plan that caps your monthly student loan payment at 10% of your discretionary income and forgives whatever is left after 20 years of payments. It has been one of the two cheapest ways to repay federal student loans since 2012, and for borrowers with high balances relative to income it still is.
It’s also going away. The One Big Beautiful Bill Act eliminates PAYE and Income-Contingent Repayment (ICR) no later than July 1, 2028, and anyone who took out a new federal loan on or after July 1, 2026 already lost access.
The short answer for current PAYE borrowers: stay put for now, figure out whether your next plan is IBR or RAP based on when you first borrowed, and don’t let the Department of Education make that choice for you in 2028.
Here’s how PAYE works today, who can still use it, how the payment math compares to the newer plans, and what to do before the plan ends.
PAYE is a Direct Loan program, so only loans made under the William D. Ford Federal Direct Loan Program qualify outright. Older loan types can get in through a Direct Consolidation Loan, but only if that consolidation was disbursed before July 1, 2026.
Loans eligible for PAYE:
Parent PLUS loans are not eligible, and neither is a Direct Consolidation Loan that repaid a parent PLUS loan. The old “double consolidation” workaround that got some parents into PAYE required a second consolidation disbursed before July 1, 2026, so that door is closed. Parents with consolidated PLUS loans should read our Parent PLUS repayment options instead; their path runs through ICR and IBR, not PAYE. Defaulted loans can’t use any income-driven plan until they’re rehabilitated or consolidated.
You have to pass three tests: the new-borrower test, the payment test, and the no-new-loans test. The first two have been the same since 2012. The third arrived on July 1, 2026, and it’s the one that catches people who consolidated or went back to school this year. Our income-driven repayment overview compares all four plans’ eligibility side by side.
The new-borrower test. You must have had no outstanding balance on any Direct Loan or FFEL Program loan when you received a Direct or FFEL loan on or after October 1, 2007, and you must have received a Direct Loan disbursement (or a Direct Consolidation Loan based on an application) on or after October 1, 2011. Consolidating doesn’t reset the first part. If you had a 2005 Stafford loan still open when you borrowed in 2010, you’re not a new borrower for PAYE even if you consolidate everything today. Borrowers in that position are the ones our IBR explainer was written for.
The payment test. Your PAYE payment, calculated from your income and family size, has to be less than what you’d pay on the 10-year Standard plan. In practice that means your federal loan balance is larger than your annual discretionary income, or close to it. This is also why PAYE has an income cap of sorts, covered below.
The no-new-loans test. If you received any new Direct Loan, including a new Direct Consolidation Loan, on or after July 1, 2026, you can’t use PAYE, IBR, or ICR, even if you were enrolled before. Your loans get moved to the Tiered Standard plan, and your only income-driven option is the Repayment Assistance Plan. That rule applies to the whole account, not just the new loan.
There’s no dollar cap on income. PAYE looks at your income relative to your debt: if 10% of your discretionary income comes out lower than the 10-year Standard payment, you qualify. Once you’re in, your payment can never go above the 10-year Standard amount, no matter how much your income rises. That cap is the main reason high earners with large graduate balances chose PAYE over the plans that weren’t capped, and it’s a feature RAP doesn’t have.
This is the murkiest question on the page, so here is exactly what the sources say. StudentAid.gov’s OBBBA page says there is no restriction on enrolling in IBR, ICR, or PAYE on or after July 1, 2026 as long as you haven’t received a new loan since then. The regulation text at 34 CFR 685.209, as republished in the Department’s May 1, 2026 final rule, still carries language limiting PAYE to borrowers who were repaying under the plan on July 1, 2024 and barring re-enrollment for anyone who left. We covered that conflict in May, and it hasn’t been resolved publicly.
NASFAA’s repayment-plan chart and several servicer-facing sources add a third date: PAYE enrollment closes July 1, 2027, a year before the plan itself ends. If you’re eligible and PAYE is the right plan for you, apply now rather than testing which version of the rule your servicer follows. If your servicer denies the application, ask for the regulatory basis in writing and file a complaint with the FSA Ombudsman if the answer doesn’t cite a rule.
PAYE sets your payment at 10% of your discretionary income, recalculated once a year, and forgives any remaining balance after 240 qualifying monthly payments (20 years). Payments on PAYE count toward Public Service Loan Forgiveness, so public servants can reach tax-free forgiveness after 120 payments instead. Months spent on IBR, ICR, SAVE, or the 10-year Standard plan before you joined PAYE count toward the 240, and our forgiveness timeline explainer walks through how the counting works.
Discretionary income for PAYE is your adjusted gross income minus 150% of the federal poverty guideline for your family size and state. For 2026 the guideline in the 48 contiguous states is $15,960 for one person, $21,640 for two, $27,320 for three, and $33,000 for four, adding $5,680 per additional person; Alaska and Hawaii run higher. Your AGI is line 11 of your Form 1040, so pre-tax 401(k) and HSA contributions lower your payment.
Two examples, using 2026 numbers:
The pattern holds broadly: PAYE and RAP land close together for single borrowers in the $50,000–$70,000 range, PAYE wins for families and lower earners, and RAP’s 30-year term means far more total payments for anyone who won’t pay off before forgiveness. Run your own numbers in our RAP calculator before you assume either answer.
Here’s a simple PAYE student loan calculator to estimate your payment.
$300 per month
Your estimated PAYE payment for the next 12 months.
| 150% of the poverty guideline (family of 1) | $23,940 |
| Discretionary income (AGI minus that amount) | $36,060 |
| 10% of discretionary income, per year | $3,606 |
| 10-year Standard plan payment (your cap) | $681 |
Estimate only. Uses the 2026 HHS poverty guidelines and PAYE’s 10%-of-discretionary-income formula; your servicer’s figure will differ if your income documentation, family size, or loan balance differs. PAYE is eliminated no later than July 1, 2028. Compare your number against RAP with our RAP calculator.
Apply online at StudentAid.gov using the income-driven repayment application; the Department says it takes most people about 10 minutes. You'll choose PAYE specifically rather than letting the servicer pick the lowest payment, because in 2026 "lowest payment" can route you into RAP, and months on RAP don't count toward PAYE or IBR forgiveness if you switch back.
The application pulls your income from the IRS with your consent, so you no longer need to upload a tax return in most cases. If your income has dropped since your last return, you can submit alternative documentation such as a recent pay stub, and if you have no income you state that on the form. Paper applications still exist through your servicer. If you have more than one federal servicer, each one needs the application. Beware of companies that charge to "enroll" you; the FTC shut down Ameritech Financial, the company a reader asked about in the comments below, in 2020, and our student loan scam checklist covers the warning signs.
Alert: Enrollment in PAYE will close on July 1, 2027. If you want to enroll in PAYE, you must do so prior to that date.
Your PAYE payment isn't fixed. It's recalculated every year when you recertify your income and family size, and you can recertify early any time your income drops or your family grows. Recertification happens through the same StudentAid.gov application, and most borrowers can now approve automatic annual recertification from IRS data so nothing lapses. Our capitalized interest explainer covers what happens to unpaid interest along the way.
If you miss the recertification deadline, you stay on PAYE, but your payment resets to the 10-year Standard amount based on what you owed when you entered the plan. You can get back to an income-based payment by submitting updated income, as long as you still qualify. Under the regulation, unpaid interest on PAYE capitalizes when your payment is no longer based on income or when you leave the plan, which is one more reason to recertify on time rather than drift.
The government also pays the unpaid interest on your subsidized loans for your first three consecutive years on PAYE if your payment doesn't cover it. Periods of economic hardship deferment don't count against the three years; other deferments and forbearances do. That subsidy is smaller than RAP's full interest waiver, which is the one place RAP is clearly more generous.
The One Big Beautiful Bill Act, signed July 4, 2025, ends the PAYE and ICR plans no later than July 1, 2028. Congress replaced them with the Repayment Assistance Plan, which launched July 1, 2026, and kept IBR as the only legacy income-driven plan for borrowers whose loans all predate July 2026. SAVE ended on July 1, 2026, so the plan the old version of this page told you to fall back on is already gone.
As of this writing, the Department of Education's guidance says only that PAYE and ICR "will be eliminated no later than July 1, 2028" and that it is "working on a transition plan for borrowers who are enrolled in those plans." No notices have gone out, no deadline has been set for individual borrowers, and no default plan has been announced.
Nobody at the Department has published the mechanics yet, so here is what we expect based on our conversations with a source at the loan servicers and on how the SAVE shutdown was run this summer. The servicers expect the PAYE wind-down to look very similar to SAVE's.
Notices start in late 2027 or early 2028. Expect a series of reminder notices first, then deadline notices with a date by which you have to choose a plan. Borrowers will very likely be moved out in tranches rather than all at once, so your deadline may land weeks or months before July 1, 2028 depending on which group your servicer puts you in. For a sense of the cadence, SAVE borrowers got 90 days from their servicer's notice to pick a plan, and the ICR page tracks the same clock for that plan's borrowers.
The default for borrowers who don't act is the open question. Servicers we've spoken to expect borrowers who miss their deadline to be placed on the Standard repayment plan, which is what happened to SAVE borrowers who didn't choose. NASFAA's chart of the new rules says PAYE borrowers land in RAP instead, with ICR borrowers moved to IBR because RAP can't take parent PLUS consolidations. Either outcome is worse than choosing: the Standard plan can multiply your payment, and RAP starts a 30-year clock and, if you later want IBR, doesn't count those months. Act on the first deadline notice, not the last.
What doesn't change: your payment count. Payments you've made on PAYE count toward forgiveness on IBR and toward RAP's 360-payment clock, and toward PSLF on any of them. The clock resets only in one direction: if you go to RAP and then come back to IBR or PAYE, the RAP months don't count toward the older plans' forgiveness unless your RAP payment was at least the 10-year Standard amount. Our RAP vs. IBR comparison explains that rule with examples.
Start with the year you first borrowed. That single fact decides whether IBR is a clone of PAYE or a worse plan, and the answer is spelled out in our RAP vs. IBR decision tree.
You first borrowed on or after July 1, 2014. Amended IBR gives you the same 10% of discretionary income and the same 20-year forgiveness as PAYE, and the law removed the old partial-financial-hardship requirement, so you qualify regardless of your debt-to-income ratio. Moving to IBR changes nothing about your monthly bill. Stay on PAYE until your servicer's transition notice arrives, then choose IBR, unless RAP's payment is meaningfully lower for your family size and you're comfortable with the 30-year term.
Your first loan came between October 1, 2011 and June 30, 2014. IBR for you is 15% of discretionary income with forgiveness after 25 years. That's a 50% higher payment and five more years than PAYE. Stay on PAYE as long as the plan exists, keep recertifying, and compare IBR against RAP in 2028 rather than switching early. For most borrowers in this group, RAP's 1–10% of total AGI beats a 15% IBR payment at incomes under roughly $80,000, and the RAP calculator will show you where your crossover is.
You're pursuing PSLF. All three plans qualify, and RAP months count toward PSLF even though they don't count toward IBR forgiveness. Pick whichever plan produces the lowest payment for the years you have left, since a lower payment means more forgiven at 120. Our PSLF qualification breakdown covers the employer and payment tests.
You're married. PAYE and IBR use your joint AGI if you file jointly and your income alone if you file separately, which is why married filing separately has been a common PAYE strategy. RAP uses combined AGI too when you file jointly, with one prorated payment across both spouses' loans. The tax cost of filing separately grew under the 2025 tax law, so run both sides before you assume the loan savings win.
For a borrower who qualifies, PAYE is still the best legacy plan available: the 10% formula, the 20-year term, and the Standard-plan cap together beat IBR for pre-2014 borrowers and beat RAP on term length for everyone. The trade-off is total cost. A lower payment over more years means more interest, and the cheapest path over 20 years is only cheap if you actually reach forgiveness.
Which brings up the tax bill. Federal income-driven forgiveness became taxable again on January 1, 2026 when the American Rescue Plan's exclusion expired, so a balance forgiven under PAYE, IBR, ICR, or RAP is added to your income in the year it's discharged. Borrowers who reached 240 payments by December 31, 2025 keep tax-free treatment even if the Department processes the discharge later, under the settlement in the American Federation of Teachers lawsuit that restarted forgiveness processing in late 2025. Everyone else should estimate the tax bomb now and check whether your state taxes forgiveness too. Our explainer on taxes and student loan forgiveness covers the insolvency exclusion for borrowers who can't cover the bill.
How do I apply for PAYE?
Complete the income-driven repayment application at StudentAid.gov, select PAYE by name, and authorize the IRS data pull. The Department says the application takes about 10 minutes. Paper applications go through your servicer. There is no fee, and any company charging one is on our scam list.
Do I qualify for PAYE?
You qualify if you're a new borrower as of October 1, 2007 with a Direct Loan disbursement on or after October 1, 2011, your calculated PAYE payment is less than the 10-year Standard amount, and you haven't received any new federal loan or consolidation on or after July 1, 2026. Parent PLUS loans and consolidations that include them are excluded. The eligibility section above has the details.
Is there an income limit for PAYE?
No fixed limit. Eligibility depends on your payment coming in under the 10-year Standard amount, and once enrolled your payment is capped there permanently. High earners with large balances can stay on PAYE; they just pay the cap.
What happens to PAYE in 2028?
The plan is eliminated no later than July 1, 2028. Servicers expect notices to start in late 2027 or early 2028, with reminders, then deadlines, and borrowers moved out in tranches. Where you land if you don't choose is unsettled: servicers expect the Standard plan, NASFAA's chart says RAP. Your PAYE payments count toward IBR or RAP forgiveness either way, so choose before the deadline.
Does PAYE count toward PSLF?
Yes. PAYE is a qualifying repayment plan for Public Service Loan Forgiveness, and payments continue to count until the plan ends.
What if I don't recertify on time?
You stay on PAYE, but your payment jumps to the 10-year Standard amount and unpaid interest can capitalize. Submit updated income to get back to an income-based payment. Turning on automatic recertification at StudentAid.gov avoids the problem; see our capitalized interest explainer for what a lapse costs.
Is PAYE forgiveness taxed?
Federally, yes, for balances forgiven on or after January 1, 2026, unless you reached 240 payments by December 31, 2025. Some states tax it too. Use the tax bomb calculator to size the bill.
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