Northwood Accountancy | What Is PAYE And How Can It Help Me?
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What Is PAYE And How Can It Help Me?

What Is PAYE And How Can It Help Me?

Debt comes along with a college diploma for most young people these days. The cost of getting a good education can exceed a hundred thousand dollars in some cases. The average student leaves school with loans that reach almost forty thousand dollars. The total owed by Americans at present is nearly one and a half trillion dollars owed by about forty-four million borrowers. The question What is PAYE is becoming a common query for those wanting to get their loans under control.

In 2012 President Obama signed his first student debt relief program into law. Those who first borrowed money for school after October 1, 2007 and borrowed under a direct or consolidation plan after October 1, 2011 may qualify for the pay as you earn plan. Economic hardship is one of the prerequisites for consideration.

Pay as you earn is a tax withholding program. Your employer will take a certain amount of money out of your paycheck for each pay period. This money is sent to the federal government which holds it as advance payments on income taxes due. Your employer will take out ten percent of your pay after taxes. This is ten percent of your net, or discretionary, income. If you still owe money after twenty years of continuous monthly payments, the loans are forgiven.

Most people who qualify for the program borrowed money during the 2008-2009 academic year. They were still in school in 20011-2012. Those whose were upperclassmen in 2008-2009 and were in graduate school in 2011-2012 may also qualify for the plan.

Those qualifying for the Public Service Loan Forgiveness program may also qualify for this program. PSLF is a plan whereby you get your student loans forgiven after you have made one hundred twenty monthly payments while working in a full time position that qualifies as a public service. Examples of qualified public services are government and not for profit organizations. Military, law enforcement, and early childhood education are also included.

If you want to see whether or not you qualify for this program you can access the pay as you earn calculator created by the United States Department of Education. You can find it at studentloans.gov. Before you can begin the process you will have to create a log-in profile. You will then answer a series of questions to determine if you are a candidate eligible for the program.

The pay as you earn program is not the only option for college graduates who owe money. There is the Income Based Repayment plan open to all student borrowers. With this plan, you repay your loans at a rate of ten to fifteen percent of your net income. After twenty to twenty-five years of payments, the loans will be forgiven. You will owe taxes to the IRS on the forgiven balance.

Getting a good education is expensive. There are lots of scholarships and academic awards that can help with the cost. You might consider a community college to minimize the expense. However you manage it, an education will pay off in the long run.