New Rules Make Student Loan Repayment Easier For Some

While many federal programs are teetering on the fiscal cliff, a lifeline has been thrown to a plan that helps student loan borrowers.

A few days before the presidential election, the U.S. Department of Education approved final regulations that revamped a generous but not widely known student loan repayment program known as Pay as You Earn.

The department made two key changes to the repayment program, which was introduced by the Obama administration about a year ago to help borrowers who may be experiencing financial hardship.

Under the plan, eligible college graduates can peg their federal loan payments to 10 percent of their annual discretionary income. And assuming payments are made like clockwork, any remaining balance will be wiped off the books after 20 years.

The original version of the program required borrowers to set repayment at 15 percent of their discretionary income, with balances forgiven after 25 years.

The new plan "is a great safety net for borrowers," said Mark Kantrowitz, publisher of, a financial aid website.

Monthly payments are based on your income and family size, with annual adjustments.

Importantly, borrowers can continue to make payments in the Pay as You Earn plan even if they land a higher-paying job and no longer are suffering financially.

It's estimated that the new version of Pay as You Earn will help more than 1.5 million federal student loan borrowers.

Unfortunately, not every borrower is eligible. The new plan is limited to recent borrowers, defined as those with at least one federal loan taken out after Oct. 1, 2011, and no loans before Oct. 1, 2007.

Other important details:

  • Loans to parents and loans through private lenders are not eligible. This is for federal student loans only.
  • If you are employed in a public service job and meet several other requirements, you may be eligible for loan forgiveness on your balance after 10 years.
  • Borrowers who have loans in the Federal Family Education Loan program (or FFEL) can consolidate them into the government's Direct Loan program to qualify for Pay as You Earn. Go to
  • Consolidating loans taken out before Oct. 1, 2007, will not make you eligible for the new Pay as You Earn plan.
  • Those that don't qualify for the new plan can still use the older version of Pay as You Earn. That's still a good safety net.

To find out whether you're eligible for Pay as You Earn, go to the Education Department's website, Also, check out FinAid's income-based repayment calculator at


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