:max_bytes(150000):strip_icc()/GettyImages-1738991864-ff0a6750e1d84d92874f9a571a1d3cf3.jpg "Proposed Income-Driven Plan May Mean Higher Monthly Payments for Student Loan Borrowers"){kind=small}
KEY TAKEAWAYS
- A proposed bill, if approved by the Senate, could change the way some borrowers’ payments are calculated for income-driven repayment plans.
- The proposed “Repayment Assistance Plan (RAP)” would replace all existing income-driven repayment plans but could increase monthly payments for certain borrowers.
- The new repayment plan would eliminate the current income-driven repayment plan calculation method, which uses a percentage of discretionary income and results in some borrowers’ monthly payments being as low as $0.
Under a bill being considered by the Senate, changes to the existing calculation method for income-driven repayment plans could increase monthly student loan payments for some borrowers.
Senators are considering a version of President Donald Trump’s “One Big Beautiful Bill,” which, if approved, would significantly change the student loan income-driven repayment plan system.
Current borrowers can apply to enroll in one of four income-driven repayment plans— Income-Based Repayment, Income-Contingent Repayment, Saving for a Valuable Education, and Pay As You Earn—to lower their monthly payments. The bill proposes reducing income-driven repayment plans to one option for borrowers who take out new loans or consolidate their existing loans after July 1, 2026: the “Repayment Assistance Plan” (RAP).
How The Calculation Method Will Change
This new income-driven repayment plan would have a different calculation method than existing plans, which researchers warn could be particularly harmful for lower-income borrowers and lead to a spike in defaults.
“RAP would require payments from even those earning far below the poverty level,” according to The Institute for College Access and Success.
The bill outlines the RAP plan method for calculating monthly payments. It would use a percentage of a borrower’s adjusted gross income (AGI), as opposed to existing income-driven plans, which consider discretionary income.
Discretionary income is essentially used to calculate the income a borrower has left after paying for taxes and necessities. It’s found by subtracting a borrower’s yearly income before taxes, or adjusted gross income (AGI), from a percentage of the U.S. Department of Health and Human Services’ poverty guidelines.
The proposed RAP plan does make adjustments for borrowers with familial responsibilities, allowing them to subtract $50 for each child they have.
Minimum Payments Required
Additionally, under the proposed RAP plan, all borrowers would have to pay at least $50 every month, compared to existing plans where certain borrowers’ payments can be as low as $0 a month. Using a percentage of AGI instead of discretionary income, could mean some borrowers would have trouble paying for both their student loans and basic needs.
“It is unreasonable to expect an individual to choose a student loan payment over a rent payment, car payment, or grocery bill,” wrote the researchers.
Income-driven repayment plans change with a borrower’s salary over time, which means they don’t have a defined number of years in which the loan must be paid off. Under current law, those under income-driven repayment plans will be forgiven the remainder of their loan if it isn’t paid off in 20 or 25 years, depending on the plan. If the proposal in front of the Senate is passed, that timeline would increase to 30 years.
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