If your student loan debt is high relative to your income, you may qualify for the Pay As You Earn Repayment Plan. Most Direct Loans—except for Direct PLUS Loans for parents and Direct Consolidation Loans that repaid PLUS loans for parents—are eligible for Pay As You Earn.
The Pay As You Earn Repayment Plan helps keep your monthly student loan payments affordable, and usually has the lowest monthly payment amount of the repayment plans that are based on your income. If you need to make lower monthly payments, this plan may be for you.
As of Dec. 21, 2012, the Pay As You Earn plan is available for eligible borrowers.
To qualify for Pay As You Earn, you must have a partial financial hardship. You have a partial financial hardship if the monthly amount you would be required to pay on your eligible federal student loans under a 10-year Standard Repayment Plan is higher than the monthly amount you would be required to repay under Pay As You Earn. For this purpose, your eligible student loans include all of your William D. Ford Federal Direct Loan (Direct Loan) Program loans that are eligible for Pay As You Earn, as well as certain types of Federal Family Education Loan (FFEL) Program loans. Although your FFEL Program loans cannot be repaid under Pay As You Earn, the following types of FFEL Program loans are counted in determining whether you have a partial financial hardship:
Your payment amount may increase or decrease each year based on your income and family size. Once you’ve initially qualified for Pay As You Earn, you may continue to make payments under the plan even if you no longer have a partial financial hardship. Find out whether you’re eligible for Pay As You Earn.
More info here - http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn
Dave Smith is part of the KCC finance staff and a Dave Ramsey Certified Coach.