What Trump’s new student loan repayment plan means for your wallet

Millions of federal student loan borrowers are about to see a major change to how their monthly payments are calculated. The Trump administration’s “One Big Beautiful Bill Act” (OBBB) introduced the Repayment Assistance Plan, or RAP — a new income-driven repayment (IDR) option that replaces most of the existing plans federal student loan borrowers use.

However, financial aid experts caution that RAP will likely make many borrowers’ payments unaffordable due to how it calculates repayment. This could add even more strain to a system already under pressure.

As of the fourth quarter of 2025, 9.6% of all federal student loans were seriously delinquent (90 days or more late), according to the latest Household Credit and Debt Report from the Federal Reserve Bank of New York. The flow rate of accounts moving into that stage has accelerated over the past year, from just 0.70% at the end of 2024 to a high of 16.2% by the end of 2025, the report found.

Here's a look at how the new plan works and what borrowers need to know before it goes into effect on July 1.

How RAP works

RAP’s payment formula is more straightforward than previous plans, said Jack Wang, a college financial aid advisor at Innovative Advisory Group and host of the Smart College Buyer podcast.

The new plan calculates payments as a percentage of a borrower’s adjusted gross income (AGI) on a sliding scale from 1% to 10% in increments of $10,000. The percentage is capped at 10% for AGIs above $100,000.

Here are the other key features of RAP:

• Required minimum monthly payment of $10 for AGIs under $10,000 (even if you earn zero income)
• $50 per month deduction per dependent
• Loan term of 30 years (compared to 10 to 25 years for existing IDR plans) 
• Longer repayment period means fewer borrowers will benefit from forgiveness
• Interest subsidy for unpaid monthly interest even if your loan is in negative amortization
• Any balance forgiven at the end of repayment will count as taxable income 
• Applies only to Direct Student Loans (Parent PLUS loans are not eligible)

Current IDR plans — income-based repayment (IBR), income-contingent repayment (ICR), Pay As You Earn (PAYE) and Saving on a Valuable Education (SAVE) plan — protect a portion of borrowers’ income before calculating monthly payments. This reserves some earnings (tied to the federal poverty level) to cover basic needs like housing and food.

However, RAP doesn’t offer that safeguard. And although the formula is simpler, the new plan will likely hike student loan payments for millions of borrowers, said Michele Zampini, associate vice president of federal policy and advocacy at the Institute for College Access and Success (TICAS).

According to a TICAS analysis, a family of four with the median U.S. household income of $81,000 would see their monthly payment jump from $36 under SAVE to $440 with RAP. Because the formula uses $10,000 income brackets, earning even $1 above a threshold bumps you into a higher payment tier. A small cost-of-living raise could end up costing you more in your student loan payment than you received.

"It can basically erase that — or even make it worse for them than if they hadn't received that raise," Zampini said of pay bumps.

On the flip side, RAP’s interest waiver ensures your loan balance won’t balloon, Wang said, adding that this is an improvement over IBR, which allows interest to grow unchecked.

Who gets to keep their current plan?

RAP rolls out July 1, 2026, going into effect over the next two years. While the IBR plan will be preserved, ICR, PAYE and REPAYE will be phased out through July 2028.

The roughly 7 million borrowers in SAVE forbearance will be forced into the new plan, restarting their payments at much higher amounts.

"All of those borrowers don't even have a payment right now," Zampini said, "and they are all going to be forced into other plans that not only will their payment restart, it will also be much higher than it would have been under SAVE."

Even so, Zampini doesn’t generally recommend federal borrowers move their loans to the private market. Federal loans come with safety nets you won’t find in the private system, such as forgiveness for severe disability or death, income-based payment options and access to Public Service Loan Forgiveness.

According to the Congressional Budget Office, the new plan will result in federal savings of $270.5 billion over the FY2025-FY2034 period with the projection that more borrowers will repay their loans under RAP compared to existing IDR plans. 

What borrowers should know

When RAP takes over and other repayment plans phase out, borrowers may be in for a budget shock.

“I think a lot more people are going to fall behind, and a lot more people are going to default,” Zampini said. “Whatever your perspective on what the right payment plan should be like, that is a recipe for disaster.”

Looking ahead, families should have more candid conversations around selecting and paying for college, Wang said. As you weigh your options, Wang recommends using a simple affordability benchmark: a projected monthly income that’s at least five times your projected monthly loan payment.

"If your payments can be, let's say, $1,000 a month, you really should be looking at a job that's going to pay you $5,000 a month, or $60,000 a year," Wang said.

Also, factor in interest rates and loan terms. Borrowing below your expected starting salary doesn’t mean you can afford payments if the interest rates are high or the loan term is short, Wang added. 

Current borrowers can run the loan simulator at studentaid.gov to estimate payments under the new plan before it kicks in.