New Repayment Assistance Plan (RAP) Redefines Federal Student Loan Payments

A federal appeals court ended the Saving on a Valuable Education (SAVE) plan earlier this year, forcing borrowers to exit SAVE within about 90 days of July 1 and move to other repayment options.

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RAP caps monthly payments at 1 %–10 % of earnings, minimum $10, and bases them on adjusted gross income (AGI). A $1 AGI shift can change loan costs by hundreds; e.g., $59,999 AGI yields about $50 less per month than $60,000.

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Borrowers can lower AGI by making pretax contributions to 401(k)s, traditional IRAs, HSAs, or FSAs. Self-employed filers may deduct legitimate business costs, retirement contributions, and health-insurance on Schedule C. Each claimed dependent reduces the monthly RAP bill by $50.

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RAP payments range from 1 %–10 % of earnings with a $10 floor; each dependent reduces the monthly bill by $50; forgiveness occurs after 30 years, compared with 20–25 years on other IDR plans.

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Landon Warmund, certified financial planner and student-loan professional at Reliant Financial Services in Kansas City, Missouri, serves on CNBC’s Financial Advisor Council. Carolina Rodriguez leads the Education Debt Consumer Assistance Program, a New York nonprofit aiding borrowers with debt relief.

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Warmund stresses that RAP offers unique opportunities for borrowers who can lower pretax income, noting modest AGI changes can yield sizable payment savings. Rodriguez recommends pretax retirement contributions, HSAs, FSAs, and legitimate business deductions to reduce AGI, while warning that RAP’s 30-year forgiveness may raise total repayment costs versus other IDR plans.

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Analysts warn RAP’s 30-year forgiveness may increase total loan costs, especially for borrowers exiting SAVE who face immediate payment jumps. Using AGI instead of discretionary income also reduces the safety net of earlier IDR options.

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Millions of federal loan borrowers must transition by July 1, making RAP’s AGI-based calculation and tax-planning tools crucial for cash flow. Though AGI reductions lower short-term payments, they may raise total costs.

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• “There's definitely some unique opportunities with it,” — Landon Warmund, Certified Financial Planner

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• “Borrowers can look to avoid these payment jumps by exploring what pre-tax benefits they have available to them at work to reduce their taxable income, which keeps them under key income numbers,” — Landon Warmund

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• “even a single dollar difference in AGI could lead to a several-hundred-dollar impact in regard to total student loan payments over a year,” — Landon Warmund

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• “This can include ordinary and necessary business costs, retirement contributions and health insurance deductions,” — Carolina Rodriguez, Director, Education Debt Consumer Assistance Program

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• “It's based on the number of dependents the borrower claims on their federal tax return,” — Carolina Rodriguez

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RAP will be the only income-driven repayment option for loans taken after July 1. Borrowers must enroll by then and compare RAP’s costs with other plans before committing.

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