SDN Members don't see this ad. (About Ads) As fantasyland will soon be coming to an end and my crushing $200k+ loan payments will enter repayment in less than a month, I have started to plan the most viable method of ridding myself of debt, or at least minimizing my suffering. For all you who have graduated this year or who will graduate and who are in the same boat as me, there appears to be a new loan repayment program for your federal loans named "Pay As You Earn." "Pay As You Earn" (you shall henceforth be known as PAYE) is similar to Income-Based Repayment (IBR). Whereas IBR caps your monthly payment to 15% of you dispensable income (income above 150% poverty level), PAYE caps your monthly payment at 10% of dispensable income. Whereas you are forgiven of any unpaid loans after 25 years with IBR, PAYE reduces loan forgiveness to 20 years. Bear in mind that any loans forgiven at the end may count as earned income in the year they are forgiven, for which you would be taxed at your marginal tax rate, probably around 35% for combined fed, state, and local. As an example, say big brother forgives $100k in loans. That year, you would pay an additional $35k in taxes. Yeah, that hurts, but not as bad as $100k. Anyways, I digress... Let me show you how this applies to someone like me, assumming a $225k+ loan, yearly income of $130k for the next 25 years (this *should* rise as years go on), interest rate of loans combined is ~7.4%, and married with no kids...... Under IBR, I would make monthly payments of $1341 for the full 25 years because loan does not get payed off during this time, and remainder would be forgiven. Total cost of loan over 25 years is $402k, or about 179% of original loan, plus any tax from loan forgiveness. Under PAYE, I would make monthly payments of $894 for the full 20 years, then remainder would be forgiven. Total cost of loan over 20 years is $215k, or 96% of original loan, plus any tax from loan forgiveness (this tax would likely be higher than IBR example, but not by more than about $50k). As you can see, this PAYE program is a no-brainer from a purely financial perspective, and no other repayment plan even remotely can compare to this (except for public service 10-year thingy). The government actually REWARDS you for NOT trying to pay off your loan as quickly as possible. It is as if they are giving you a 0% interest rate on a 20-year loan (not including lump sum tax after 20 years from loan amount forgiven, but you can easily plan ahead for that). What's the catch, you may ask? Nothing really, but there are two things in order to qualify: First, no loans may have been dispersed before 2007 (or maybe 2006, can't remember). Also, one loan must have been dispersed after October 2011, or you must have done a direct consolidation after October 2011. Second, you must ethically be OK with doing this. While one person may view this as a tax rebate, another may view this as cheating the government and, hence, your fellow Americans. .....it appears fantasyland may not have ended after all. Thank you Obama!