Education Department Launches ‘Pay As You Earn’ Student Loan Repayment Plan

Washington, DC — Dec. 24, 2012 — The U.S. Department of Education has announced that many borrowers are now able to take advantage of a new repayment plan that could lower their monthly federal student loan bills. The plan, known as Pay As You Earn, caps monthly payments for many recent graduates at an amount that is affordable based on their income. This new option follows through on President Obama’s promise to provide student borrowers with relief on their student loan payments and help them responsibly manage their debt.

“We know many recent graduates are worried about repaying their student loans as our economy continues to recover, and now it’s easier than ever for student borrowers to lower monthly payments and stay on track,” said U.S. Secretary of Education Arne Duncan.

The Pay As You Earn plan, which President Obama first announced in October 2011, caps payments for Federal Direct Student Loans at 10 percent of discretionary income for eligible borrowers, and the Department estimates as many as 1.6 million Direct Loan borrowers could reduce their monthly payments with this plan. This new option complements additional repayment plans the Department offers to help borrowers manage their debt, including Income-Based Repayment, which caps monthly loan payments at 15 percent of a borrower’s discretionary income. Borrowers who are not eligible for Pay As You Earn may still qualify for Income-Based Repayment, which more than 1.3 million borrowers already use.

Most borrowers are able to repay their student loans, but for many who are struggling – including teachers, nurses, first-responders and others in lower-paying public service careers – these income-driven plans could reduce monthly payments to help ensure that borrowers are able to manage their debt and avoid the negative consequences of defaulting on their student loans. While borrowers may pay more in interest in the long run under an income-driven plan, those options can provide some relief on loan payments, especially in a borrower’s early years of repayment.

Given the many options that make paying back federal student loans more manageable, the Department has developed tools to help borrowers make responsible financing and repayment decisions. The Department recently launched an online application that allows borrowers to compare their estimated monthly payments under different income-driven repayment plans and make an informed choice in their repayment plan selection. The electronic application is available to borrowers who have at least one Direct Loan, or a loan in the Federal Family Education Loan (FFEL) program that is eligible to be repaid under one of the income-driven plans. Borrowers can access the electronic application either through their loan servicer’s website or by logging on to

In addition, the Department has developed resources such as the Financial Awareness Counseling Tool, which helps borrowers better understand their loan obligations and manage their finances. The interactive tool provides students with basic financial information, helps borrowers establish a budget based on their individual circumstances, and offers repayment tips and strategies to avoid default. To access the tool – and for more information about all federal student loan repayment plans, including eligibility criteria and repayment plan calculators – visit


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