The US Department of Education introduced two new federal student loan repayment plans that took effect on July 1: the Repayment Assistance Plan (RAP) and the Tiered Standard Plan [1, 2, 3]. These plans replace several existing repayment options.
The Repayment Assistance Plan is an income-driven plan with monthly payments calculated as 1% to 10% of a borrower's adjusted gross income, with a $10 minimum monthly payment [1, 2, 3]. Unlike prior income-driven plans, RAP does not protect a portion of income from repayment but offers forgiveness after 30 years, extended from the 20 or 25 years under earlier plans [1, 3]. RAP also includes a $50 monthly discount for each qualifying dependent and may subsidize principal reduction for borrowers making payments that do not lower the principal balance [1].
The Tiered Standard Plan sets fixed monthly payments based on the borrower’s total debt and repayment period, with a minimum monthly payment of $50 [1, 3].
Borrowers taking out federal student loans after July 1 are considered new borrowers and must enroll in one of the two new plans, losing access to prior options like Income-Based Repayment (IBR) [2, 3]. Parent PLUS loan borrowers who take out loans after July 1 will lose eligibility for Public Service Loan Forgiveness, which requires enrollment in an income-driven or old Standard repayment plan [2].
The Department of Education said the changes simplify the repayment system and target rising tuition costs and excessive borrowing, with Undersecretary Nicholas Kent stating the overhaul "addresses longstanding challenges in higher education and federal student lending, including exorbitant tuition costs, unchecked borrowing, and a confusing maze of repayment options that too often leave borrowers with higher balances despite making payments" [3].
Advocates and experts expressed concern about the changes. Jaylon Herbin of the Center for Responsible Lending said, "Borrowers are facing a great deal of confusion and anxiety ahead of the changes. We're encouraging borrowers to carefully review all available repayment options before enrolling in a new plan" [1]. Financial planners Landon Warmund and Kathleen Boyd warned borrowers to be cautious, with Boyd calling it "really high stakes stuff" [2].
The new rules eliminate several existing repayment plans, including some favored by low-income borrowers who could previously make $0 monthly payments under income-driven plans [1, 2]. RAP bases payments on adjusted gross income without subtracting a protected income allowance seen in prior plans [1, 3].
The next major update will likely come as the Department of Education monitors the impact of these changes on borrower repayment behavior and loan balances.
