I have some loans under PAYE and some under IBR.  Both repayment plans are supposed to subsidize any interest not covered by your lower monthly payments…so I was dismayed to see that interest was cabeing capitalized on most of my loans.  After much digging, i found that the interest subsidy only applies to subsidized loans.  Some of mine are denoted as “unsubsidized” .. don’t know why. 

Next I tried to find an accounting of how much interest had been paid for me on the loans that DID qualify as “subsidized”—can’t find anywhere on the statements, summaries, inbox, etc, provided by my loan servicer.  Tried calling them, they seem to know even less than I do about the interest subsidy provisions of the law.

BTW, I am so grateful to Heather, and all of you who post, for trying to clariy the overly-complicated rules our government comes up with….

Unpaid interest accrues but should not capitalize while a borrower is in PAYE or IBR until a triggering event occurs: the borrower chooses to leave the repayment plan or no longer has a partial financial hardship.  The interest subsidy is only for the subsidized portion of the debt (if any) and only pays the amount of interest on the subsidized debt IF the monthly payment does not cover it. Under PAYE, capitalization is further capped at 10% of the original principal balance.

Not sure why you’d be in PAYE and IBR at the same time?  Maybe older FFEL loans that would need to be consolidated?

When I applied to be on an income-based payment plan, my servicer (nelnet) said that some of my loans qualified for PAYE and some for IBR…and et, I think you are right that it was the FFEL loans that did not qualify for IBR.  However, they told me I should consolidate the FFEL since I hope to someday use the PSLF program to get some of my loans forgiven.  So I consolidated them, at which time the consolidated loans had to be serviced by a DIFFERENT loan servicer (or so I was told).  But after only a few months the consolidated loans were transferred BACK to Nelnet with no explanation.  So now my total monthly payment is paid in two segments due on different days of the month….very confusing, but I’ve tried to find out why it is this way, and the people who answer the phone at Nelnet don’t seem to why it happened, but said they COULD “sync” up the two payment dates.  In the meantime, I sent my most recent tax return to them, and they said I no longer qualify for either PAYE or IBR—which I agree with,I sold property with capital gains, so my gross income was too high to qualify…EXCEPT that I read otherwise on this site that once on the plans you don’t get “kicked off” when your income rises—you still are on the plan, just have a higher calculated payment.  I guess it doesn’t matter, except next year when I don’t have the capital gains, I’ll have to apply all over again if I was “kicked off” the plans.  Again, thanks for trying to help us all wade thru the morass of Federal student loan rules.