A new federal initiative for student loan repayment is poised to reshape financial obligations for many borrowers, with a notable impact on those with lower incomes. The upcoming Repayment Assistance Plan (RAP) is projected to increase monthly payments and overall costs for individuals who previously benefited from more lenient terms under existing programs. This shift necessitates a reevaluation of financial planning for a significant portion of student loan holders.
The "One Big, Beautiful Bill" Act introduced the Repayment Assistance Plan (RAP), which is expected to become available for enrollment by July 1, 2026. This legislation also mandates the phasing out of all other current income-driven repayment plans over a three-year period. However, borrowers who secure their loans prior to July 1, 2026, retain the option to enroll in the existing Income-Based Repayment (IBR) plan. Past financial modeling has indicated that the monthly payment amounts under the new RAP could be considerably higher for various borrower groups, including those with families. This is particularly true for certain low-income borrowers who previously qualified for zero-dollar monthly payments under the IBR plan, and will now face a minimum monthly obligation of $10.
To illustrate the potential effects of the new repayment system, hypothetical scenarios have been developed using data from the Department of Health and Human Services, Federal Student Aid, ZipRecruiter, and Indeed. These calculations are based on several assumptions: the average borrower holds $39,123 in direct student loans, reflecting figures from the second quarter of 2025; the loans carry a current interest rate of 6.39%; and borrowers experience an annual salary increase of 3%.
Consider a single borrower with an annual income of $23,475 and no dependents. Under the existing IBR plan, this individual would pay approximately $4,512 over 20 years. This low figure is largely due to the IBR plan's provision of $0 monthly payments for single borrowers earning $23,475 or less, and for households of four earning $48,225 or less. Consequently, this borrower's monthly payments would typically range from $0 to $43, with the remaining loan balance forgiven after two decades. In stark contrast, under the new RAP, the same borrower would incur a total cost of $38,510 over the loan's duration. Their monthly payments would fluctuate between $39.13 and $230.50, and they would need to extend their repayment period to 30 years to qualify for loan forgiveness. If this same borrower were married with two children at the start of repayment, their low taxable income would result in zero monthly payments under IBR for the entire repayment period, leading to full loan forgiveness after 20 years. However, under RAP, their total payments would amount to $12,287. Although RAP does offer provisions to reduce payments for borrowers with children, it still imposes a minimum monthly payment of $10. Thus, this borrower's monthly payments would range from $10 to $130.50, with loan forgiveness occurring after 30 years.
Furthermore, the RAP plan includes a new feature where the Department of Education can contribute up to $50 per month towards reducing the borrower's principal balance. However, for low-income individuals burdened with substantial loan amounts, this assistance may not be sufficient to significantly alleviate their financial burden or shorten their repayment timeline.
For an average-income borrower starting repayment with an annual salary of $68,400, a figure representative of recent graduates, and remaining single without children, the repayment landscape presents a different picture. Under the IBR plan, this borrower would pay a total of $54,867, with monthly payments varying from $374 to $442, and would clear their debt within 11 years. Conversely, if enrolled in RAP, their total payment would be slightly higher at $55,165, with monthly payments ranging from $342 to $578, and their loan would be fully repaid in 10 years. Should this average-income borrower be married with two children at the outset of repayment, the IBR plan would lead to a total payment of $63,537, with monthly payments between $168 and $384, and the loan fully repaid over 20 years. Under the RAP plan, the total payment would be less at $59,437, with monthly payments from $242 to $528, and the loan settled in 12 years.
It is evident that the adjustments to student loan programs outlined in the "One Big, Beautiful Bill" will disproportionately impact borrowers with lower earnings. The elimination of zero-dollar monthly payments and the extension of repayment periods will lead to a substantially increased financial obligation for this group compared to the terms of the previous IBR plan. For an average-income single borrower, the new plan implies a 734% increase in total payments relative to IBR. A low-income borrower with a family, who previously paid nothing under IBR, will now face total payments of $12,287 under RAP. For individuals with average incomes, the distinction between IBR and RAP payments is less pronounced, with the ultimate financial outcome largely dependent on individual priorities and unique circumstances.