Repayment Assistance Plan: How Payments, Forgiveness Work
The federal student loan system is undergoing a significant transformation, with changes that will impact how borrowers repay their debt. Starting July 1, the existing income-driven repayment options will be phased out and replaced by a new program called the Repayment Assistance Plan (RAP).
RAP is designed to be the primary repayment option for new federal student loan borrowers. Monthly payments under RAP will be based on income and the number of dependents. Borrowers who take out federal student loans on or after July 1 will have RAP as their only income-driven option. Existing borrowers can choose to stay in their current plan or switch to RAP.
The transition to RAP has led to confusion among borrowers as they navigate the new rules and adjustments. Understanding how RAP works and comparing it to current plans is crucial for borrowers to make informed decisions about their repayment strategy.
What is the Repayment Assistance Plan?
RAP is a new federal income-driven repayment program set to launch in July. It ties monthly payments to a borrower’s adjusted gross income (AGI) and offers a pathway to loan forgiveness. Borrowers will need to make qualifying payments for 30 years before any remaining balance is canceled, which is longer than the timelines offered under existing income-driven plans.
How does the Repayment Assistance Plan work?
Monthly payments under RAP are calculated based on a borrower’s AGI, ranging from 1% to 10% of income with a minimum of $10 a month. Payment amounts increase gradually as income rises, capped at 10% for those earning $100,000 or more. Payments can be adjusted based on household factors, such as the number of dependents. RAP also offers interest and principal protections to borrowers.
When will RAP launch?
Existing borrowers can start transitioning to RAP as of July 1. New borrowers who take out loans after July 1 will have RAP or the revised Standard Repayment Plan as their repayment options.
Who is eligible for RAP?
RAP is available for federal Direct Loans, excluding Parent PLUS Loans. Borrowers with Parent PLUS Loans taken out after July 1 will be limited to the Standard Repayment Plan.
Pros and cons of the Repayment Assistance Plan
RAP offers interest protections, principal support, income-based flexibility, and adjustments for dependents. However, it also comes with a longer path to forgiveness, higher baseline payments for some borrowers, and reduced repayment flexibility.
Other options besides the Repayment Assistance Plan
New borrowers will have RAP or the revised Standard Repayment Plan as their options. Current borrowers can remain in their current plan or switch to RAP. Existing income-driven plans like ICR and PAYE will be available until at least 2028.
RAP vs. Income-Based Repayment (IBR)
RAP and IBR differ in payment calculation, forgiveness timeline, interest, principal reduction support, dependent adjustment, and eligibility window. Borrowers can use the Loan Simulator tool to estimate monthly payments under different plans.
In conclusion, the Repayment Assistance Plan represents a significant shift in the federal student loan repayment landscape. Borrowers need to understand the changes, weigh the pros and cons, and choose the repayment option that best suits their financial situation.
