Paye announced his plans with an Instagram post Thursday night, ending speculation he might enter the NFL draft.
He led the Wolverines with 12 1/2 tackles for loss and was second on the team with 6 1/2 sacks during the regular season. Paye was voted second-team All-Big Ten by conference coaches.
The 17th-ranked Wolverines will play No. 9 Alabama on Jan. 1 in the Citrus Bowl.