Huge Update For 40 Million Borrowers On Student Loan Forgiveness And Repayment

Repayment Assistance Plan Part Of House GOP Proposed Student Loan Forgiveness And Repayment Overhaul

In late April 2025, the House Education and Workforce Committee, led by Republican lawmakers, unveiled a comprehensive student loan reform proposal with a significant new income-driven repayment option. This plan, officially called the Repayment Assistance Plan, aims to make student loan payments more manageable for future borrowers while solving a vexing problem: balances that grow instead of shrink. Here’s precisely how this new plan would work in practice if enacted.

ForbesMassive Changes Proposed In New House GOP Student Loan Plan Include Student Loan Repayment OverhaulBy Shahar Ziv

What Is The Repayment Assistance Plan?

On April 28, 2025, House committee members introduced a draft bill proposing sweeping changes to federal student loans, include a focus on repayment. At its heart is the Repayment Assistance Plan, an income-based repayment program slated to begin July 1, 2026. The RAP is designed to replace existing income-driven plans for future borrowers and standardize how monthly payments are calculated. Lawmakers see it as a fresh start for borrowers; one intended to ensure that every payment reduces your debt and that no borrower’s balance spirals out of control due to interest.

Who Qualifies For The Repayment Assistance Plan And Who Is Grandfathered Into Existing Student Loan Repayment Plans?

The proposed changes to student loan repayment would only apply to loans after July 1, 2026. In other words, if you’re already on a repayment plan (an exception is covered in the next section), you would be grandfathered into that plan under the House GOP proposal. New loans made after July 1, 2026 will only have two options: the new standard plan or the new Repayment Assistance Plan.

Borrowers with mixed loans (i.e., some pre-July 1, 2026 and some post) would be required to repay each group of loans under the applicable rules. This means that if you take out a new loan after July 1, 2026, that new loan must enter the new Repayment Assistance Plan or standard plan, but your old loans could stay under your old repayment plan. An exception to that might be if you consolidate old loans after July 1, 2026 in which case the consolidated loan might be subject to new repayment rules, but this use case is still ambiguous.

Repayment Assistance Plan: What Happens To Those Enrolled In SAVE, PAYE, And ICR?

The proposed draft would repeal Section 455(e) of the Higher Education Act that established Income-Contingent Repayment. It would direct the Department of Education to transition those with ICR loans onto the new Repayment Assistance Plan within six months of the law being signed. Those on a different IDR plan (SAVE, PAYE, REPAYE, IBR), would not forced to move under the repeal of ICR and only people on ICR plans are automatically transitioned.

How Does The Repayment Assistance Plan Work?

The Repayment Assistance Plan is an income-based repayment plan with a progressive payment formula. In simple terms, your monthly payment is tied to your income. Here’s how would work:

• Minimum Payment: The plan requires a token minimum payment of $10 per month, regardless of income.
• Income Brackets: Above the minimum, your payment is calculated as a small percentage of your adjusted gross income using a tiered system. For example, if you earn between $10,000 and $20,000 a year, your yearly payment would be 1% of your income; if you earn $20,000 to $30,000, it’s 2% of your income; $30,000 to $40,000 is 3%, and so on. The percentage increases with each $10,000 income bracket. If you earn up to $10,000, you would pay a flat $120 per year, which comes to $10/month. If you earn between $10,000 and $20,000, you would pay 1% of income per year, roughly $8 per month on $10,000 or $17 on $20,000. Above $100,000, you would pay 10% of income per year.
• Monthly Calculation: Once your annual amount is determined, it’s divided by 12 to get your monthly payment.
• Dependent Adjustment: The plan also recognizes family responsibilities. For each dependent child under 17, the formula knocks $50 off your monthly payment. This is effectively a $600 per year payment credit per child, acknowledging that supporting a family leaves less income to pay student loans.

In short, the Repayment Assistance Plan uses a sliding scale based on income and provides borrowers with a straightforward and predictable way to estimate their payment based on their income alone, without complex formulas about poverty lines or discretionary income. At the same timeUnlike some older plans, RAP sets a floor of $10 so that everyone contributes at least a small amount each month.

How Would House GOP Repayment Assistance Plan Affect Student Loan Borrowers?

A key innovation of the Repayment Assistance Plan would be how it handles interest and loan balances. One of the most frustrating experiences for borrowers in existing income-driven repayment plans is making payments faithfully, only to see their loan balance stay the same or increase because the payment wasn’t enough to cover accruing interest. The House’s proposal directly tackles this problem with a two-part solution:

1. Interest Subsidy: If your monthly payment under RAP isn’t enough to cover all the interest accrued that month, the unpaid interest is waived. In other words, your loan balance will not grow due to unpaid interest. Each month you make your required payment, that payment first goes toward that month’s interest; any interest beyond what you paid is essentially forgiven. This ensures you won’t be hit with runaway interest piling up on your balance. This is a crucial protection for borrowers with low incomes; it means no more watching your balance balloon, even when you’re in good standing and making payments.
2. Principal Reduction Match: Not only does the plan prevent balance growth, but it also guarantees progress on paying down the principal. If your monthly payment is so small that it wouldn’t reduce your loan’s principal by at least $50 (after covering interest), the government will chip in to ensure a $50 principal reduction that month. In effect, every on-time payment knocks at least $50 off your balance, one way or another. For example, suppose your payment only manages to cover interest and trims $10 off the principal. In that case, the Department of Education will reduce your remaining principal by an additional $40, so the total principal paid that month is $50. This is like a small monthly principal forgiveness benefit or a matching payment that guarantees you’re reducing your debt over time.

These two features work hand-in-hand. The interest subsidy ensures you don’t fall behind, and the principal match ensures you move forward. Borrowers will no longer see balances that never budge; under RAP, if you make your payments on time, your balance will either be stable or declining every month. Why is this important? It addresses a long-standing borrower complaint that even affordable payments can feel futile if the debt grows. By guaranteeing at least some principal is paid, the plan builds a sense of progress and prevents perpetual debt.

In an analysis of RAP, Preston Cooper, a senior fellow at the American Enterprise Institute, argues that it is a superior plan to SAVE plan despite the higher payments because SAVE borrowers aren’t paying down principal. “SAVE requires mass loan forgiveness to make it all work: our typical borrower carries her loans for two decades and still has around $11,000 forgiven at the end,” he wrote in a blog post. “While RAP has higher payments than SAVE, they’re worth it: those higher payments combined with a principal subsidy mean loan balances decline rapidly,” he added.

What Happens To Student Loan Forgiveness Under The House GOP Repayment Assistance Plan?

What happens if a borrower’s income is so low that even with these subsidies, they haven’t fully repaid the loan after a long period? The proposal includes a familiar safety net: student loan forgiveness after a set period. Under the Repayment Assistance Plan, any remaining balance would be forgiven if a borrower hasn’t paid off their loan after 360 qualifying monthly payments, which is 30 years of payments. Qualifying payments include payments made under the RAP plan and certain payments made under other plans or economic hardship deferments, as defined in the bill.

What’s The Upshot On The Repayment Assistance Plan?

The Repayment Assistance Plan could provide substantial relief to distressed borrowers while requiring them to contribute what they can. Student loan borrowers would never pay more than they can afford, and the government would ensure the loan balance trends downward. It could be a win-win, with the borrower seeing real progress and knowing the loan won’t last forever, and the government still expecting those who earn more to pay more of their debt back.

AEI’s Cooper believes that the Repayment Assistance Plan “would be far less of a drain on the federal budget: taxpayers get their money back faster and rarely have to shell out for loan forgiveness.” According to his estimate, a “typical borrower’s loans will cost the government nearly $6,000 less under RAP relative to SAVE.”