Last week, Republican House leaders unveiled sweeping new legislation that aims to fundamentally reshape the federal student loan repayment system. The bill, if enacted, would create a new income-driven repayment plan that would largely replace the existing system.
While the new “Repayment Assistance Plan” (or “RAP” for short) would have some noteworthy features, advocacy groups have warned that the new plan would be a disaster for many student loan borrowers.
“Our current student loan system is broken and has left students holding over $1.6 trillion in federal student loan debt, with taxpayers estimated to lose hundreds of billions of dollars on loans disbursed over the next decade,” said Education and Workforce Committee Chairman Tim Walberg (R-MI) in a statement last week following the bill’s initial passage out of committee. “The bill passed by Committee Republicans today not only would save taxpayers over $350 billion but also bring much-needed reform in three key areas: simplified loan repayment, streamlined student loan options, and accountability for students and taxpayers. I’m proud of the Committee’s work today to finally stand up and end the status quo of endless borrowing.”
But student loan borrower advocacy groups slammed the bill, arguing it would increase monthly payments and push out student loan forgiveness for millions of borrowers.
“There’s no other way to see this reconciliation legislation than as a blatant attack on student borrowers and young people striving for economic opportunity,” said Alex Lundrigan, Federal Policy Manager of Young Invincibles, in a statement last week. “The changes to repayment plans will skyrocket monthly payments, even mine, limit access to college for low-income students, and stifle upward mobility for millions. But the cruelest blow? These cuts are being used to bankroll massive tax breaks for corporations and the ultra-wealthy, offering no real relief for working- and middle-class Americans during a cost-of-living crisis. It’s a gut-wrenching reversal of national priorities.”
So, what would RAP actually look like for student loan borrowers if the bill becomes law, and what does this mean for those who are currently in repayment?
Monthly student loan payments would be calculated differently under RAP
Currently, all four income-driven repayment (IDR) plans (ICR, IBR, PAYE and SAVE) use fixed repayment formulas to calculate a borrower’s monthly payment. Those formulas are as follows:
- For ICR, 20% of the borrower’s Adjusted Gross Income (AGI) above 100% of the federal poverty limit for the borrower’s family size.
- For IBR, 15% of the borrower’s Adjusted Gross Income (AGI) above 150% of the federal poverty limit for the borrower’s family size.
- For PAYE and “new” IBR, 10% of the borrower’s Adjusted Gross Income (AGI) above 150% of the federal poverty limit for the borrower’s family size.
- For SAVE, 5% to 10% of the borrower’s Adjusted Gross Income (AGI) above 225% of the federal poverty limit for the borrower’s family size, depending on whether the borrower has graduate school loans.
But the RAP repayment formula is different in key ways. First, there is no poverty limit exclusion under RAP, which means even the lowest-income borrowers will have a minimum monthly payment requirement (under current income-driven repayment plans, borrowers earning below the poverty limit amounts would have no payment obligation). Advocates have warned that this would be devastating for lower-income borrowers who are living paycheck to paycheck, and may push many into default.
The RAP plan also would not use a fixed repayment formula. Instead, the percentage of a borrower’s AGI that is the basis for the payment calculation is tiered and would gradually increase at higher income levels. The lowest-income borrowers earning between $10,000 and $20,000 in AGI would be subject to a 1% AGI repayment formula; that would increase by one percentage point for every additional $10,000 in AGI, up to 10% for borrowers with an AGI that is greater than $100,000.
This would result in monthly student loan payments that would be fairly comparable to the PAYE plan for middle-income borrowers. But RAP would likely result in higher monthly payments for low-income and high-income borrowers compared to the existing four IDR plans. And RAP would be almost universally more expensive than the SAVE plan — so nearly all of the eight million borrowers who had enrolled in SAVE would see an increase in their monthly payment amount under RAP.
RAP plan pushes out student loan forgiveness to 30 years
Another significant change under the RAP plan is that borrowers would be required to be in repayment for longer before they can qualify for student loan forgiveness. Under ICR, IBR, PAYE and SAVE, borrowers qualify for loan forgiveness after 20 or 25 years in repayment, depending on the specific plan. Borrowers in SAVE could get loan forgiveness even sooner than 20 years if they borrowed relatively small amounts initially.
But for RAP, borrowers would not qualify for student loan forgiveness until they have made 360 qualifying monthly payments — the equivalent of 30 years. Payments made under the other IDR plans would count towards RAP’s 30-year term, but there would not be any option for faster student loan forgiveness unless the borrower is pursuing Public Service Loan Forgiveness (PSLF). RAP would be a qualifying repayment plan for PSLF under the current version of the legislation.
RAP would prevent borrowers from changing to a different student loan repayment plan
Under the current IDR system, borrowers are freely allowed to change their repayment plan, as long as they are eligible to do so under program rules. That means borrowers enrolled in SAVE, for instance, can apply to switch to PAYE or IBR (and in fact, many borrowers are trying to do that now, given the ongoing SAVE legal challenge and likelihood that the SAVE plan will ultimately get struck down).
But under the proposed legislation, most borrowers in RAP would be locked into that plan and would not be able to switch.
Interest benefits of RAP would keep student loan balances from ballooning
One of the positive features of the RAP plan is that it borrows a benefit from the SAVE plan that waives any interest that accrues in excess of the borrower’s minimum required monthly payment.
“With respect to a borrower of a loan made under this part, for each month for which such a borrower makes an on-time applicable monthly payment re- quired under paragraph (1)(A) and such monthly payment is insufficient to pay the total amount of interest that accrues for the month on all loans of the borrower repaid pursuant to the Repayment Assistance Plan under this sub- section, the amount of interest accrued and not paid for the month shall not be charged to the borrower,” reads the legislative text.
This would effectively stop any future negative amortization — the process by which a borrower’s student loan balance increases over time when their monthly payments are less than the amount of monthly interest accrual.
RAP would also have a feature that would allow up to $50 of each monthly payment to be applied to the loan principal, even under circumstances under which the entire payment would normally be applied to interest only.
RAP would be the only IDR option for new student loan borrowers, with limited options for current borrowers
For new federal student loans taken out on or after July 1, 2026, RAP would be the only IDR plan available. This means that borrowers who take out loans after the cutoff date would not be able to enroll in ICR, IBR, PAYE or SAVE.
However, current borrowers in repayment wouldn’t necessarily be grandfathered into existing repayment plans. The proposed legislation would effectively eliminate the ICR, PAYE and SAVE plans by repealing the income-contingent repayment statute that served as the statutory authority for these plans. The bill would also eliminate a newer, more affordable version of the IBR plan for borrowers who first took out loans after July 1, 2024. If the legislation is enacted, all of these borrowers would be automatically put into the older version of the IBR plan, which will likely result in higher monthly payments for the vast majority of them. Borrowers could instead switch to the RAP plan, which may have more affordable payments than IBR in some cases; but that would then mean borrowers are locking themselves into a 30-year repayment term, five years longer than what IBR offers.
Parent PLUS borrowers could be in trouble
The landscape for Parent PLUS borrowers could be particularly dire. Under the current version of the bill, Parent PLUS borrowers who have already consolidated their loans and are in repayment under the ICR plan would be automatically moved to the IBR plan, like everyone else. This could actually be good news for these borrowers, as IBR may be more affordable than ICR.
But all other Parent PLUS borrowers would effectively be cut off from any income-driven repayment plan. Under the legislation, they would not be able to enroll in RAP. And with the repeal of ICR, they would have no other option to have affordable payments tied to their income. This could be financially devastating for Parent PLUS borrowers who experience a reduction in income.
RAP plan is not available yet, and student loan reform bill is not finalized
Importantly, the RAP plan is not finalized or available yet. The proposed legislation must still go through several additional steps before it can even go to the House floor for a full vote.
Meanwhile, the Senate may pass its own version of the bill. If there are differences between the House and Senate versions, those distinctions would have to be reconciled in a final version of the bill, which would again have to pass both the House and the Senate before it could be sent to President Trump to be signed into law.
The bottom line is that the situation remains quite fluid. Student loan borrowers should remain vigilant as the legislative process continues.
