Congressional Republicans are advancing a budget reconciliation package that proposes a significant overhaul of the federal student loan repayment system, including a Repayment Assistance Plan to replace IDRs. Understanding these proposed changes is critical to protect your institution’s financial health.
The core of this overhaul aims to simplify repayment options, moving from a complex array of plans to a more streamlined, binary choice for future borrowers. However, any change brings complexities and potential pitfalls that college financial aid departments must be prepared to navigate.
The Repayment Assistance Plan (RAP): A Replacement for Income-Driven Repayment Plans
Designed as an income-driven alternative, the Repayment Assistance Plan, or “RAP,” would be available to both current and future borrowers, with payments primarily based on Adjusted Gross Income (AGI).
- Payment Structure: Payments would range from a minimum of $10 per month (for those earning $10,000 or less AGI) up to 10% of AGI (for those earning $100,000 or more).
- Elimination of $0 Payments: This $10 minimum payment, while seemingly small, is a significant departure from previous income-driven plans that allowed $0 payments for the lowest-income borrowers. This could push more vulnerable individuals into delinquency, increasing the burden on your office to intervene and prevent defaults.
- Interest Waiver & Principal Reduction: A positive for borrowers, any interest not covered by the monthly payment would be waived, and the government would apply an additional amount (up to $50/month) to the principal, ensuring balances decrease.
- Extended Forgiveness Term: Total forgiveness would occur after 30 years (360 qualifying payments), which is longer than the previous 20- or 25-year terms.
- Plan Commitment: Crucially, once a borrower enrolls in the RAP, they cannot switch to another plan later. This feature makes initial counseling incredibly high-stakes, as financial aid advisors must help borrowers make a long-term decision.
- Impact on Graduate Borrowers: Graduate borrowers, often with higher debt loads, are projected to face significantly higher upfront payments under RAP compared to older income-driven plans, and many may pay off their loans before reaching the 30-year forgiveness mark. This will lead to more complex counseling needs for your graduate alumni.
- Elimination of SAVE: President Biden’s legally frozen SAVE Plan would be eliminated, impacting the 8 million borrowers currently enrolled and requiring your office to guide them through new choices.
The New “Standard” Plan: Implications for Future Cohorts
For students taking out loans after July 1, 2026, a new Standard Plan would offer fixed monthly payments over a period ranging from 10 to 25 years, determined by the size of their debt.
- Debt under $25,000: 10-year repayment
- $25,000 – $50,000: 15-year repayment
- $50,000 – $100,000: 20-year repayment
- Over $100,000: 25-year repayment
This plan offers predictability, but its rigidity means no direct income-based flexibility if their monthly payments are unsustainable, even with a high AGI. This could lead to increased delinquency for those unable to maintain payments, directly threatening your CDR.
Change = Confusion for Student Loan Borrowers
The constant shifts in student loan policy over the last five years have created an unprecedented level of borrower confusion and exhaustion, directly fueling the alarming surge in delinquency and pushing Cohort Default Rates to dangerous highs. Even if the Repayment Assistance Plan is good for borrowers, they’ll still need to make payments to avoid default.
As institutions face mounting pressure and the very real threat of jeopardized Title IV eligibility, passive observation is no longer an option.
Don’t let the next wave of repayment changes overwhelm your borrowers and undermine your institution’s stability.
Partner with IonTuition now to implement a robust default aversion plan that brings clarity to borrowers and protects your future.