PAYE (Pay As You Earn) Repayment Plan: How It Works and Who Can Still Enroll in 2026

PAYE (Pay As You Earn) is an income-driven repayment plan for federal student loans in the Direct Loan program. It sets your monthly payment at 10% of your discretionary income — the part of your adjusted gross income above 150% of the federal poverty guideline for your family size — and never more than the 10-year Standard plan amount. Any balance left after 20 years of qualifying payments is forgiven.

Two things changed recently: enrollment closes July 1, 2027, and the plan’s interest subsidy switched back on July 1, 2026, after nearly two years off. The plan itself ends June 30, 2028.

Yes. Enrollment stays open until July 1, 2027, and the plan itself ends June 30, 2028.

Much of the coverage says PAYE stopped accepting new enrollments on July 1, 2026. That is not what the Department of Education says — the enrollment window runs a year longer.

The July 2024 cutoff is disputed, and the Department treats PAYE as open. A 2023 regulation would have closed PAYE to new enrollments as of July 1, 2024. A federal court in the Eastern District of Missouri vacated that rule on March 10, 2026, but the same condition appears in the regulations the Department republished in 2026. The Department’s application and guidance say eligible borrowers can apply, and applications from borrowers who were not on PAYE in July 2024 are being approved. No court has decided which controls, so approval is not guaranteed. Keep a copy of your application and any approval or denial notice. The printed rule also bars re-enrollment, so a borrower who leaves PAYE may not be able to return.

You need to be a “new borrower.” You must have had no outstanding balance on any Direct or FFEL loan as of October 1, 2007, and received a Direct Loan disbursement on or after October 1, 2011. Paying a loan off after 2007 does not retroactively qualify you. Your loan history is on StudentAid.gov.

Your loans have to be the right type. PAYE covers Direct Subsidized, Direct Unsubsidized, Direct PLUS loans made to graduate or professional students, and most Direct Consolidation Loans. Parent PLUS loans are not eligible, and neither is a consolidation loan that repaid a Parent PLUS loan.

An old FFEL loan does not block you. It gets misdiagnosed often. A FFEL loan can never be repaid under PAYE, but it does not disqualify your Direct Loans — the FFEL loan stays where it is while your Direct Loans go on PAYE. A denial blamed on a FFEL loan rests on faulty reasoning.

A Direct Loan borrowed on or after July 1, 2026 closes the plan. A new Direct Loan disbursed on or after that date ends PAYE — and the other legacy income-driven plans — for your whole Direct Loan portfolio.

The Standard plan comparison is now a payment cap, not an entrance test. PAYE used to require a partial financial hardship: a calculated PAYE payment lower than your payment on the 10-year Standard plan. The 2026 regulations dropped that requirement and kept the comparison only as the ceiling on your payment. The Department’s website and application still describe the old test, so a servicer may apply it. Keep any denial notice.

Your monthly payment is 10% of your discretionary income, divided by 12.

Discretionary income is your adjusted gross income minus 150% of the federal poverty guideline for your family size and state. Alaska and Hawaii use higher guidelines, which produces a lower payment.

A single borrower earning $50,000 with a family size of one in the contiguous United States has discretionary income of roughly $26,000 after subtracting 150% of the 2026 poverty guideline. Ten percent of that is about $2,600 a year, or roughly $217 a month. The guideline is adjusted annually, so the figures shift each year.

Your payment is capped. PAYE will never charge you more than the 10-year Standard payment calculated on your balance when you entered the plan, no matter how much your income rises.

A $0 payment is a real payment. If your income falls at or below 150% of the poverty guideline, your payment is $0, and those months still count toward forgiveness and toward Public Service Loan Forgiveness.

Filing status changes the math, not your eligibility. File jointly and both incomes count. File separately and only yours does. Either way you remain eligible for the plan.

Recertification happens every year. Your servicer recalculates the payment annually from updated income and family size. Missing the deadline raises your payment until you recertify, but it does not capitalize your unpaid interest and it does not remove you from PAYE.

The subsidy stopped in August 2024, when a court injunction against the SAVE plan led the Department of Education to switch it off, and it restarted on July 1, 2026 after that litigation settled. What it does is pay 100% of the interest your PAYE payment does not cover on Direct Subsidized loans, for the first three consecutive years of repayment under the plan.

The subsidy is narrow. It applies only to Direct Subsidized loans. Unsubsidized loans accrue interest normally from day one, and after the three-year window closes you are responsible for all accruing interest on everything.

What happened in August 2024. After a federal court enjoined the SAVE plan, the Department of Education concluded it could not keep applying the interest benefits tied to the 2023 income-driven repayment regulations. The Department directed servicers to reverse the PAYE interest subsidy back to August 9, 2024, adding previously subsidized interest onto borrower balances. Many borrowers saw their balances jump without anything about their payment or their plan having changed.

What happened on July 1, 2026. After the SAVE litigation settled in March 2026, the Department directed servicers to restart the subsidy. Borrowers began receiving notices in July describing it as a restart resulting from a legal settlement affecting income-driven repayment plans. On a PAYE account with subsidized loans and a payment that does not cover the interest, the subsidy should be appearing again.

This is a restored benefit, not a new one. Some servicer pages describe it as effective July 1, 2026, which reads like a new program. It is the same three-year subsidy PAYE has always had, turned back on.

Two questions about the gap remain unanswered. The Department has not addressed how the roughly two years when the subsidy was off interact with the three-year window. It also has not said whether the interest added back to balances after August 9, 2024 will be removed or credited. We have not seen it credited back on client accounts, and no guidance on either question exists. For a borrower who was on PAYE during that period, both questions carry real money, and a written request to the servicer is the only way to establish where the three-year window now stands and what became of the reversed interest.

Unpaid interest is not capitalized while you stay on PAYE. PAYE does not capitalize when your income rises far enough that your payment resets off of income, a difference from Income-Based Repayment. Capitalization becomes a risk on leaving the plan, and interest capitalization covers what triggers it.

Any balance left after 240 qualifying monthly payments — 20 years — is forgiven, for undergraduate and graduate debt alike.

Forgiveness is federally taxable again. The American Rescue Plan Act made income-driven forgiveness tax-free through December 31, 2025. That exclusion expired. Balances forgiven now are added to your taxable income for the year unless Congress acts. Some borrowers qualify for the insolvency exclusion, which applies when total debts exceed total assets at the time of forgiveness. State treatment varies, and we are not tax advisors — confirm your situation with a tax professional.

PSLF credit ends when the plan does. PAYE qualifies for Public Service Loan Forgiveness, and payments under PAYE count toward the 120 through June 30, 2028. The plan is eliminated the day after, so PSLF credit after that date accrues under whatever plan the borrower moves to. Which plans qualify for PSLF covers the full picture.

A borrower still on PAYE without an election by July 1, 2028 is placed on the Repayment Assistance Plan, or on Income-Based Repayment for loans that RAP cannot take. The plan is eliminated that day under the One Big Beautiful Bill Act.

Until then PAYE operates normally — payments process, forgiveness credit accrues, PSLF credit accrues through June 2028.

Your progress carries forward, but not symmetrically. Qualifying payments made under PAYE count toward forgiveness under the plan you move to, including toward the 360-payment clock under RAP. Months paid under RAP generally do not carry back into PAYE or IBR. The asymmetry matters in deciding when to move.

The live question is arithmetic. For a borrower who qualifies, PAYE’s remaining value is whether it produces a lower monthly payment than RAP. With the plan ending in 2028, the size of that difference is what the decision turns on. PAYE vs RAP works through the comparison, and PAYE vs IBR covers the other side.

SAVE forbearance carries its own deadline. For a borrower sitting in SAVE forbearance, the 90-day notice is the item with an actual date attached — when it lapses, the servicer assigns a plan. The 2026–2027 repayment timeline explains what the notice does and what follows if it goes unanswered.

Applications go through the income-driven repayment request on StudentAid.gov, with PAYE selected as the plan.

The application opens after signing in with your FSA ID at StudentAid.gov.

Authorizing access to IRS return data speeds processing considerably — most applications clear in a few business days. Uploading income documents by hand takes longer.

Selecting PAYE returns a list of the plans you do qualify for if PAYE is unavailable to you.

Servicer confirmation comes last. The servicer verifies eligibility and updates the payment. During processing an account may show a generic income-driven label before the plan name appears.

A paper application through the servicer works too, by mail or fax. Either route produces a confirmation and an updated loan summary worth keeping.