RAP student loan plan may increase your payments. Tax planning can help

Key Points:

• The U.S. Department of Education's new Repayment Assistance Plan (RAP), effective July 1, calculates student loan payments as 1% to 10% of adjusted gross income (AGI), with a $10 minimum monthly payment, making small reductions in AGI impactful for lowering payments.
• Borrowers exiting the discontinued SAVE plan must switch within 90 days of July 1 and can reduce RAP payments by lowering pretax income through strategies such as increasing contributions to pretax retirement accounts, health savings accounts (HSAs), flexible spending accounts (FSAs), or claiming business expenses if self-employed.
• RAP offers a $50 monthly payment reduction per dependent claimed on federal tax returns, providing additional savings for borrowers supporting dependents.
• Despite potential monthly savings, RAP extends loan forgiveness timelines to 30 years, longer than other income-driven repayment (IDR) plans, which may result in higher total payments over time; borrowers should compare options carefully.
• While RAP will be the only IDR plan for new borrowers post-July 1, current borrowers can maintain access to existing plans like Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE) until mid-2028, after which they may switch to RAP with credit toward forgiveness.