PAYE Plan: What It Is, Why It Is Ending, and What to Do Now
PAYE was one of the best income driven student loan plans ever created. The new law closed it to new enrollment and will shut it down entirely in 2028. If you are on PAYE now, here is exactly what is happening and what your options are.
What is the PAYE plan?
PAYE stands for Pay As You Earn. It is an income driven repayment plan for federal student loans that calculates your monthly payment as 10 percent of your discretionary income, which is your AGI minus 150 percent of the federal poverty guideline for your family size. The payment is capped at whatever the standard 10 year plan would charge, and any balance remaining after 20 years of qualifying payments is forgiven.
PAYE was introduced in 2012 and was available to borrowers who had no outstanding federal student loan balance as of October 1, 2007, and who received a Direct Loan disbursement on or after October 1, 2011. It offered the same 10 percent payment as new IBR but with a shorter 20 year forgiveness timeline, making it the preferred plan for many borrowers chasing long term forgiveness.
Is PAYE going away?
Yes. The One Big Beautiful Bill Act closed PAYE to new enrollment starting July 1, 2026. No new borrower can sign up for PAYE after that date. Borrowers who are currently on PAYE can stay on it until July 1, 2028, at which point PAYE will be fully terminated. At that point all remaining PAYE borrowers must choose a different plan or be moved to the Standard Plan automatically.
The same law also ended ICR (Income Contingent Repayment) on the same timeline. The only income driven plans that will exist after 2028 are RAP and IBR.
PAYE vs RAP vs IBR: how the plans compare
| Feature | PAYE | RAP | New IBR |
|---|---|---|---|
| Payment formula | 10% of discretionary income | 1-10% of total AGI | 10% of discretionary income |
| Payment cap | Standard plan amount | No cap | Standard plan amount |
| Forgiveness timeline | 20 years | 30 years | 20 years (new borrowers) |
| Interest subsidy | Partial (unpaid interest on subsidized loans covered for 3 years) | Full (all unpaid interest waived) | None |
| Balance growth protection | Limited | Balance never grows | None |
| Status after July 2028 | Terminated | Open | Open |
What to do if you are on PAYE now
If you are close to forgiveness
If you have 15 or more years of qualifying payments on PAYE, you may be within 5 years of the 20 year forgiveness mark. Switching to RAP would reset your forgiveness clock to 30 years. Stay on PAYE as long as possible (until July 2028), then switch to IBR which also has a 20 year forgiveness timeline for post-2014 borrowers. Your qualifying payment months carry over between income driven plans so you do not lose credit for time served.
If you are pursuing PSLF
PSLF forgiveness happens at 120 payments regardless of which income driven plan you are on. Since PSLF does not care about the plan's forgiveness timeline, the only thing that matters is your monthly payment amount. Compare your current PAYE payment against what you would pay on RAP. If RAP is lower, switching saves you money every month until forgiveness. Use the PSLF estimator to compare.
If you are early in repayment
If you have fewer than 10 years of payments, the math changes. PAYE and IBR both forgive at 20 years. RAP forgives at 30. But RAP guarantees your balance never grows and usually charges a lower monthly payment. The tradeoff is real: lower payments now versus 10 extra years before forgiveness. Run the numbers through the RAP calculator and the IBR calculator to see the monthly difference for your income.
If you can afford to pay aggressively
If your income has grown and you can handle the standard plan payment, consider switching now and paying off the balance faster. The standard 10 year plan charges more each month but saves the most in total interest and avoids any forgiveness tax bomb.
The PAYE calculator question
Since PAYE uses the same formula as new IBR, 10 percent of discretionary income with a standard plan cap, you can use our IBR calculator to estimate your PAYE payment. Select "New IBR (10%, 20 year forgiveness)" and the numbers will match PAYE exactly. The calculator also shows your RAP payment side by side so you can compare both plans in one step.
Key dates for PAYE borrowers
| Date | What happens |
|---|---|
| July 1, 2026 | PAYE closed to new enrollment. RAP launched. |
| July 1, 2028 | PAYE terminated. All remaining PAYE borrowers must switch to RAP, IBR, or Standard. |
| If you do nothing by 2028 | You are placed on the Standard Plan automatically. Payments could double or triple. |
Frequently asked questions
What is the PAYE student loan plan?
PAYE stands for Pay As You Earn. It is an income driven repayment plan that charges 10 percent of your discretionary income with forgiveness after 20 years. It was created in 2012 and is being phased out under the One Big Beautiful Bill Act.
Is PAYE going away?
Yes. PAYE closed to new enrollment on July 1, 2026. Existing borrowers can stay on it until July 1, 2028, when it will be terminated entirely. After that only RAP and IBR will be available as income driven plans.
What is the difference between PAYE and IBR?
PAYE and new IBR use the same payment formula: 10 percent of discretionary income capped at the standard plan amount. The main difference was eligibility. PAYE required no loan balance before October 2007 and a disbursement after October 2011. New IBR required a disbursement after July 2014. Both forgive after 20 years.
Should I switch from PAYE to RAP?
It depends on how close you are to forgiveness. If you are near the 20 year mark, stay on PAYE then switch to IBR which keeps the 20 year clock. If you are early in repayment and want the lowest monthly payment with balance growth protection, RAP may be better despite the 30 year timeline. Use the RAP calculator to compare.
Can I use a PAYE calculator to estimate my payment?
Yes. Since PAYE uses the same formula as new IBR, our IBR calculator gives you the exact same payment when you select the new IBR option. It also shows your RAP payment for comparison.
Do my PAYE payments count toward PSLF?
Yes. Every qualifying monthly payment on PAYE counts toward the 120 payments needed for Public Service Loan Forgiveness. Your payment count carries over if you switch plans.