Millions of federal student loan borrowers are about to see a big change in how their monthly payments are calculated. Trump Administration Introduces “One Big Beautiful Bill” (OBBB) Repayment Assistance Plan or RAP – A New Income Based Repayment (IDR) option It replaces many existing plans that federal student loan borrowers use.
However, financial aid experts warn that the RAP will likely make many borrowers’ payments unaffordable because of how it calculates repayment. This can add more pressure to an already under strained system.
By the fourth quarter of 2025, 9.6% of federal student loans were seriously delinquent (90 days or more late), according to the latest Household Credit and Debt Report from the Federal Reserve Bank of New York. The rate of flow of accounts to this stage is faster than last year 0.70% to 16.2% higher by the end of 2024 By the end of 2025, the report found.
Here’s a look at how the new plan works and what borrowers should know before it takes effect on July 1.
RAP’s payment formula is simpler than previous plans, he said Jack Wonga college financial aid consultant at Innovation Consulting Group and host of the Smart College Buyer podcast.
The new plan calculates payments as a percentage of the borrower’s adjusted gross income (AGI) on a sliding scale of 1% to 10% in $10,000 increments. The percentage is capped at 10% for AGIs above $100,000.
Here are other key features of RAP:
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AGIs of less than $10,000 require monthly payments of $10 (even if you earn zero income)
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$50 per month deduction for each dependent
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30-year loan tenure (compared to 10 to 25 years for existing IDR plans)
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Longer repayment periods mean fewer borrowers will benefit from forgiveness
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Interest subsidy for unpaid monthly interest even if your loan is in negative amortization
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Any balance that is forgiven at the end of repayment is counted as taxable income
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Applies to Direct Student Loans only (Parent Plus loans do not qualify)
Current IDR plans — Income-Based Repayment (IBR), Income-Based Repayment (ICR), Pay As You Earn (PAYE) and Savings for Value Education (SAVE) plans — save a portion of borrowers’ income before calculating monthly payments. It reserves some income (linked to the federal poverty level) to cover basic needs such as housing and food.
However, RAP does not provide this protection. And although the formula is simple, the new plan will likely improve student loan payments for millions of borrowers. Michelle ZampiniVice President of Federal Policy and Advocacy at the Institute for College Access and Success (TICAS).
According to a TICAS analysis, a family of four with a median U.S. household income of $81,000 would see their monthly payments rise above that. $36 down to SAVE $440 with RAP. Because the formula uses a $10,000 income bracket, earning even $1 above the threshold pushes you into the higher payment tier. A small living expense can end up costing you more than you get in paying off your student loans.
“It could basically wipe it out — or even make it worse for them if they didn’t get that raise,” Zampini said of the wage freezes.
On the flip side, RAP’s interest waiver ensures that your loan balance won’t balloon, Wang said, an improvement over IBR, which allows interest to grow unaccounted for.
The RAP begins on July 1, 2026, and will be implemented over the next two years. While the IBR plan will be maintained, ICR, PAYE and REPAYE will expire by July 2028.
About 7 million borrowers in SAVE forbearance will be forced into the new plan, and their payments will resume at a much higher rate.
“All of the borrowers don’t even have a payment right now,” Zampini said, “and they’re all going to be forced into other plans that will not only restart their payments, they’ll be much higher than they were saved.”
Even so, Zampini generally does not recommend that federal borrowers transfer their loans to the private market. Federal loans come with safety nets you won’t find in the private system, such as forgiveness for severe disability or death, income-based payment options and access to public service loan forgiveness.
According to the Congressional Budget Office, the new plan would lead to $270.5 billion in federal savings over the FY2025-FY2034 period with estimates that more borrowers would repay their loans under the RAP than under existing IDR plans.
When the RAP takes over and other repayment plans expire, borrowers may face a budget shock.
“I think a lot more people are going to be left behind, and a lot more people are going to default,” Zampini said. “Whatever your view of what a proper payment plan should look like, it’s a recipe for disaster.”
Looking ahead, families should have more open conversations about choosing and paying for college, Wang said. As you weigh your options, Wang recommends using a simple affordability criterion: an estimated monthly income that is at least five times your estimated monthly loan payment.
“If you can be paid, let’s say, $1,000 a month, you should really be looking for a job that pays you $5,000 a month or $60,000 a year,” Wang said.
Also, factor in interest rates and loan terms. Wang added that borrowing below your expected starting salary doesn’t mean you can pay if the interest rate is high or the loan term is short.
Current borrowers can run the loan simulator studentaid.gov Estimate payments under the new plan before it starts.
