The federal student loan system just got its biggest overhaul in decades. H.R.1, the “One Big Beautiful Bill Act,” creates a new landscape where borrowers get stronger protections against runaway interest and clearer repayment options. The centerpiece is the Repayment Assistance Plan (RAP), the most borrower-friendly income-driven plan Congress has ever designed.
How RAP’s Interest Waiver Changes Everything
The Repayment Assistance Plan (RAP) solves the biggest problem with previous income-driven plans: ballooning balances from unpaid interest. Under the RAP, if your payment doesn’t cover monthly interest, any unpaid interest is immediately waived.
Furthermore, the plan guarantees reduction of your principal with every payment. If your calculated payment covers only interest, the government contributes up to $50 toward the principal. Unless you are on a deferment, you’re required to make at least a $10 monthly payment; the amount is calculated based on your Adjusted Gross Income (AGI).
Payment Examples: What You’ll Actually Owe Under RAP
The government’s contribution formula is a bit complicated but reads “…the lesser of ($50 or your total monthly payment) minus the portion of your payment that applied to principle. Algebraically, it’s something like C = min(50,A) – B
It’s probably best to give some examples:
These are major changes, a fundamental redesign that forces loans to get paid down and off the books in a timely manner, with the government taking a stake in the payoff and waiving boatloads of interest.
As mentioned above, everyone makes monthly payments, unless they’re still enrolled. The payments range from a minimum of $10 monthly to 10% of your adjusted gross income (AGI). When you file your tax returns each year, your AGI will determine the payment amount for the following year. Up to $20,000 AGI the payment is 1% with a $10 minimum, so at $20,000 the payment is $200 divided by 12 or $16.67. The percentage increases by one percent for every additional $10,000 of income, capping at 10% for anyone earning over $100,000 annually. If AGI is in the 20,000’s the annual payment is 2%, in the 30’s it’s 3%, and up to $100,000 where it tops out at 10%.
There are some interesting ideas for families with dependents to help manage the payment amounts. Each dependent of the borrower in repayment is worth a $50 payment reduction, meaning that the AGI floor of the $10 minimum payment rises by $6,000 per dependent. So in stead of $12,000, it goes to $18,000 with one dependent, $24,000 with two, $30,000 with three, etc.
In addition to these payment reduction features, a married couple is allowed to use the “Married Filing Separately (MFS)” status, meaning that the borrower’s AGI is based only on their separate income.
PSLF and 30-Year Forgiveness: How Long Must You Pay?
Repayment Assistance Program continues with the PSLF (Public Service Loan Forgiveness) after 120 monthly payments (ten years in public service), and it provides forgiveness to everyone else after 360 monthly payments (30 years of payments). PSLF is a tax-free event, while the rest of the population will pay taxes on the amount forgiven. Payments from previous plans count toward your new monthly forgiveness totals.
The RAP replaces ALL current income-driven repayment plans and prevents the executive branch from creating any new repayment plans. The OBBBA also allows for a “New Standard” repayment plan, wherein the loan is fully amortized over 10, 15, 20, or 25 years depending on the total outstanding principal.
Converting Old Loans to New Plans
By July 2028 all current borrowers on an income-driven repayment plan will need to select between Standard repayment, Amended IBR (if you borrowed before July 2026), or RAP.
Given RAP’s interest waiver and principal guarantees, we’ve discovered a potential loophole for former students with outstanding federal loans: Go back to school at least part time, and take out a new loan after July 1, 2026. Then convert all your loans to the RAP.
A local community college will be the least expensive. While you attend classes, your loan payments are deferred, and you can drop out once the new loan is funded, incurring minimal expense while gaining access to the RAP.
These changes represent the most significant student loan reform in decades. RAP’s interest-protection design and guaranteed principal progress solve problems that have plagued income-driven repayment for years. The new borrowing limits force a reckoning with professional education costs that may favor those who plan early or force them into alternative financing strategies.
For most borrowers, these changes are positive. RAP offers better protection against runaway balances than any previous plan. Simplification reduces confusion. The Congressional backing provides stability.
Contact us to discuss how these changes might affect your financial strategy
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Securities are offered through LPL Financial, Member FINRA / SIPC. Investment advice offered through Enduring Wealth Advisors®, LLC, a registered investment advisor. Enduring Wealth Advisors®, LLC and Enduring Wealth, Inc are separate entities from LPL Financial.
Research and development of this article included the use of artificial intelligence tools.