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Education Department Touts New Student Loan Repayment Plan, But Read The Fine Print
Forbes • • business
Key Points:
- The Education Department is promoting a new Repayment Assistance Plan (RAP) launching July 1, aimed at making federal student loan repayment easier and offering benefits like interest waivers and matching principal payments for on-time payments.
- RAP payments may be significantly higher than under existing plans like SAVE or PAYE, potentially causing "payment shock" for borrowers transitioning from these soon-to-be-discontinued plans.
- Unlike other income-driven repayment plans, RAP requires 30 years of payments before loan forgiveness, extending the repayment timeline and potentially increasing total interest paid over time.
- The interest subsidy and principal matching benefits under RAP only apply if payments are made in full and on time; late, partial, or extra payments may forfeit these advantages.
- Borrowers should carefully evaluate RAP’s tradeoffs, as the Education Department's marketing emphasizes benefits while downplaying higher payments and longer forgiveness timelines, making independent review crucial.
