Student loan borrowers get new repayment options in July: How to pick

Millions of federal student loan holders will have access to two new repayment options starting July 1, due to changes included in the One Big Beautiful Bill Act. As a result of the legislation, some student loan repayment plans are also going away.

The Repayment Assistance Plan, or RAP, is the U.S. Department of Education’s latest income-driven repayment plan, or IDR, meaning it sets borrowers’ monthly bills at a share of their income.

The other new option is the Tiered Standard Plan, which includes fixed payments spread over several different timelines, based on a borrower’s total debt.

“Borrowers are facing a great deal of confusion and anxiety ahead of the changes,” said Jaylon Herbin, ‌director of federal campaigns at the Center for Responsible Lending, a consumer advocacy organization.

“We’re encouraging borrowers to carefully review all available repayment options before enrolling in a new plan,” Herbin said.

Here’s what to know about the two new repayment options coming in July, and how to decide the right plan for you.

Congress created the first IDR plans back in the 1990s to make student loan borrowers’ bills more affordable. Historically, the plans cap people’s monthly payments at a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years.

Under RAP, monthly payments will typically range from 1% to 10% of your earnings; the more you make, the bigger your required payment. There will be a minimum monthly payment of $10 for all borrowers. Current IDR plans offer certain very low-income borrowers a $0 monthly payment.

RAP also doesn’t shield a portion of a borrower’s income in its bill calculation like other IDR plans do, but rather determines their bill based on so-called adjusted gross income. AGI is your total earnings before taxes, minus certain deductions.

RAP leads to student loan forgiveness after 30 years, compared with the typical 20-year or 25-year timeline on other IDR plans.

But RAP comes with a few perks: Federal student loan borrowers get $50 off their monthly bill per qualifying dependent, for example. Those who are keeping up with their bills but aren’t making progress paying down their principal can also qualify for a small subsidy from the Education Department.

“In some cases, the feds will even throw in some dollars to reduce principal if the billed payment doesn’t do that on its own,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate repayment.

Plus, payments made under RAP will give borrowers credit on the decade-long timeline to debt relief under the Public Service Loan Forgiveness program. PSLF allows not-for-profit and government employees to have their student loans excused after a decade.

Borrowers with existing federal student loans will maintain access to some current IDR plans, including the Income-Based Repayment plan, or IBR. Under the terms of IBR, borrowers pay 10% of their discretionary income each month if their loans were taken out on or after July 1, 2014. That share rises to 15% for borrowers with loans before that date. The newer borrowers are eligible for debt forgiveness after 20 years, and older borrowers after 25 years.

While the Income-Contingent Repayment plan, or ICR, and PAYE, or the Pay As You Earn plan, remain available to current borrowers for a period, neither program culminates in debt forgiveness anymore. The only reason you’d want to be in either plan, then, is if it brings you the lowest monthly payment, said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, a nonprofit that assists borrowers.

If that’s the case, you can remain in ICR or PAYE until the plans expire on July 1, 2028. Afterward, if you switch into IBR or RAP, you’re entitled to credit toward forgiveness for your previous payments.

One other difference to RAP: If you transfer from RAP to another IDR plan, like IBR, the payments you made on RAP won’t count on your timeline toward loan forgiveness, Mayotte said.

“While payments on the existing plans, such as IBR, PAYE and ICR count towards the RAP’s 30-year forgiveness, RAP payments don’t count towards the other plans’ forgiveness timeline,” she said.

The current Standard Plan is fairly simple: Borrowers typically have their debt divided into fixed payments over 10 years. It’s often the fastest option for people to pay off their student debt, compared with the Education Department’s plans that base payments on a borrower’s income.

However, the new Tiered Standard Plan will spread your debt into fixed payments over one of four time frames, depending on what you owe.

Those who’ve borrowed up to $24,999 will still have a 10-year repayment term. But those who owe between $25,000 and $49,999 will pay their debt back over 15 years; a balance ranging from $50,000 to $99,999 will be paid back over 20 years; and a debt over $100,000 will lead to a 25-year repayment term.