But why don’t I qualify for Pay As You Earn?

In order to qualify for Pay As You Earn, you must meet the government’s definition of a “new borrower.”  You are considered a new borrower if you meet the following two conditions per the Federal Student Aid organization (studentaid.ed.gov):

1)”You have no outstanding balance on a Direct or FFEL Program loan as of October 1, 2007.” This means that on this day you have never gotten or have paid off your government student loans.


“You have no outstanding balance on a Direct Loan or FFEL Program when you obtain a new loan on or after October 1, 2007.” So if you got a loan before the 10/1/07 date, if it paid off before you get a new government loan you are fine.  If you got a loan and still have an active government loan from before 10/1/07, you are not eligible for PAYE.


2)”You receive a disbursement of a Direct Subsidized Loan, Direct Unsubsidized Loan, or student Direct PLUS loans on or after October 1, 2011, or receive a Direct Consolidation Loan Based on an application received on an application on or after October 1, 2011.”

So you must get a Direct Loan Program loan after 10/1/11 as well.  Very simple.  However please note you are not considered a new borrower if the Direct Consolidation Loan you receive repays loans that violate rule 1.  So if you have loans from pre 10/1/11 that were consolidated, these make you still ineligible.Now assuming you meet both criteria you are eligible for PAYE but what can you apply it to?  All the loans must be Direct Loans.  So if you meet the criteria you can apply it to your Direct Loans but not your FFELP loans.

What can be done with the FFELP loans?  Usually these loans can be placed on the Income Based.  In addition, since you have to meet the two prongs above for ANY of your loans to be eligible, if you consolidate these they will become Direct Loans and thus in this case your consolidation loan would meet the criteria of #2 and now be eligible for pay.

Confusing right?  If you have any questions put them in the comments and if necessary  I’ll turn into a different post for clarification!