Money Tips for Students, October 2013

Plan may help with repaying federal student loans

Kentuckians who are having trouble repaying their federal student loans may want to check into the Pay As You Earn plan, according to the Kentucky Higher Education Assistance Authority (KHEAA).

The Pay As You Earn plan generally has the lowest monthly payments of all the repayment plans offered by the U.S. Department of Education (ED). It can be used by borrowers who have what ED calls a partial financial hardship. That means that the amount borrowers would pay under the standard 10-year repayment program is higher than what the borrower would pay under the Pay As You Earn plan.

Not everyone will qualify. Only three types of federal student loans are eligible:

  • Federal Direct Stafford Loans.
  • Federal Direct PLUS Loans made to graduate or professional students.
  • Federal Direct Consolidation Loans that do not include a Federal PLUS Loan made to a parent.

In addition, borrowers must have received one of those loans after Sept. 30, 2011. Borrowers who are repaying loans received before Oct. 1, 2007, are not eligible.

Loans received through the Federal Family Education Loan Program cannot be repaid under the Pay As You Earn plan. However, they will be used to decide if borrowers have a partial financial hardship.

Borrowers who make 20 years of payments under the Pay As You Earn plan will have the rest of their eligible loans forgiven. They may be required to pay taxes on the amount that is forgiven.

For more information about Pay As You Earn, visit and click on “Student loans, forgiveness” under the “How Do I Find …?” link in the menu at right.

KHEAA is the state agency that administers Kentucky’s grant and scholarship programs. It provides free copies of “It’s Money, Baby,” a guide to financial literacy, to Kentucky schools and residents upon request at .

To learn how to plan and prepare for higher education, go to For more information about Kentucky scholarships and grants, visit; write KHEAA, P.O. Box 798, Frankfort, KY 40602; or call 800-928-8926, ext. 6-7372.


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