U.S. Education Department simplifies student loan repayment with two-plan overhaul

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Student loan repayment overhaul

Highlights

Starting July 1, the U.S. Education Department will replace over 40 student loan repayment options with the new Repayment Assistance Plan (RAP) and Tiered Standard Plan.
Under RAP, monthly payments are 1%–10% of income, include $50 reductions per dependent, and offer matching principal payments and interest waivers for on-time payers.
The Tiered Standard Plan lowers monthly payments for larger balances by extending terms to 10, 15, 20, or 25 years, with full transition required by July 1, 2028.

New repayment structure starts July 1

As detailed by the U.S. Department of Education, the Trump administration's Working Families Tax Cuts Act eliminates multiple income-contingent repayment options and shifts borrowers toward the new Repayment Assistance Plan, or RAP, and the Tiered Standard repayment plan. The administration says the move addresses a system in which more than 40 repayment and discharge options have left many borrowers struggling to navigate their loans.

Under RAP, monthly payments range from 1% to 10% of a borrower's income, depending on earnings, and are reduced by $50 a month for each dependent. The plan also waives remaining unpaid monthly interest for borrowers who make on-time payments, and the department says it will add up to $50 a month in matching principal payments if a borrower's payment does not reduce principal by at least that amount.

The fact sheet says borrowers can receive a discharge in limited cases if a balance remains after 360 on-time monthly payments. It also provides examples showing lower monthly costs under RAP compared with prior income-driven plans, including for borrowers whose balances previously could rise even when they made required payments.

Borrower impact and transition timeline

The new Tiered Standard repayment plan sets fixed repayment terms of 10, 15, 20 or 25 years based on the amount borrowed. The administration says that structure lowers monthly payments for borrowers with larger balances by extending the repayment period beyond the former standard 10-year schedule.

In one example cited in the fact sheet, a borrower with an initial $30,000 balance sees the minimum monthly payment fall to $262 from $341 because repayment stretches to 15 years. For current borrowers in phased-out plans with loans made before July 1, 2026, the transition period runs until July 1, 2028, during which they can choose RAP, the Tiered Standard plan or Income-Based Repayment, or IBR.

Applications are available through StudentAid.Gov and take about 10 minutes to complete, according to the department. Borrowers who allow the department to access federal tax data directly from the Internal Revenue Service can complete the process more quickly because they do not need to upload income information manually.

Our earlier coverage of affordability pressures on the “American Dream” noted that a growing share of U.S. adults believe it is out of reach, largely because everyday costs have risen faster than many incomes. We highlighted survey findings pointing to cost of living—especially housing and healthcare—as the biggest barriers, alongside broader pessimism about economic mobility. That backdrop helps frame why changes to student-loan repayment terms and monthly payment levels matter for household budgets.

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