Repayment Assistance Plan May Make Student Loan Bills Soar

Republican Student Loan Plan Quirk: Repayment Assistance Plan Doesn’t Account For Inflation

House Republicans’ newly proposed Repayment Assistance Plan, part of their sweeping 2025 student loan reform bill known as the Student Success and Taxpayer Savings Plan, aims to simplify federal repayment options. However, a little-noticed design flaw could make the plan much costlier over time: The Repayment Assistance Plan currently ties monthly payments to income tiers fixed in today’s dollars; not adjusted for inflation. In fact, the word inflation isn’t mentioned at all in the 103-page draft proposal (I reached out to Committee Chair Tim Walberg’s (R-Michigan) office as well as the Republican Education & Workforce Committee office for comment and will update this page if I hear back).

As a result, borrowers whose income merely keeps pace with inflation may still be pushed into higher repayment tiers over time. This would result in borrowers paying more of their income over time, causing their student loan bills to soar even though their real income never improves.

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Over a 30-year repayment term, inflation alone could push borrowers into higher repayment tiers. The result? Borrowers may owe significantly more on their student loans—not because they’re earning more, but because RAP doesn’t account for the rising cost of living.

What Is The Repayment Assistance Plan In The Republican Student Loan Plan?

Unveiled in April 2025 by the House Education and Workforce Committee, the Republican student loan plan proposes a simplified, tiered repayment system for federal borrowers. Under the Repayment Assistance Plan, monthly payments are calculated as a share of adjusted gross income on a tiered scale using fixed income brackets:

• AGI ≤ $10,000: $120
• $10,001–$20,000: 1% of AGI
• $20,001–$30,000: 2% of AGI
• $30,001–$40,000: 3% of AGI
• $40,001–$50,000: 4% of AGI
• $50,001–$60,000: 5% of AGI
• $60,001–$70,000: 6% of AGI
• $70,001–$80,000: 7% of AGI
• $80,001–$90,000: 8% of AGI
• $90,001–$100,000: 9% of AGI
• AGI > $100,000: 10% of AGI

Importantly, these brackets are hard-coded into the plan and do not currently plan to adjust for inflation. The key question becomes whether there is real wage growth or simply nominal wage growth.

The goal of the Repayment Assistance Plan is to ensure every borrower “always sees progress” on their loans, as Preston Cooper, a senior fellow at the American Enterprise Institute, told me during an interview. The unpaid interest is forgiven if your payment doesn’t fully cover the interest. And if your payment doesn’t reduce your principal by at least $50, the government makes up the difference. After 360 payments (30 years), any remaining balance is forgiven.

Repayment Assistance Plan Bracket Creep: The Hidden Inflation Risk For Student Loan Borrowers

According to the Bureau of Labor Statistics, inflation in the U.S. has averaged about 4.0% per year over the last 50 years. If a borrower’s wages grow in line with that inflation but don’t increase in real terms, they may still be pushed into higher Repayment Assistance Plan brackets.

This is called bracket creep; when inflation moves someone into a higher payment tier. RAP’s fixed brackets create exactly this risk. Unlike tax thresholds or programs like SAVE or IBR, RAP’s brackets are not indexed to inflation, cost of living or wage growth. While neither SAVE nor IBR is directly indexed to inflation in the traditional sense, the calculation of payments is indirectly linked to inflation through the use of federal poverty guidelines, which are updated annually to reflect changes in the cost of living. As a result, if the cost of living increases (i.e., inflation rises), the poverty guideline increases, which means more of your income is shielded from loan repayment calculations, potentially lowering your required monthly payment or keeping it from rising as quickly as your income.

Because the Repayment Assistance Plan’s income tiers are fixed in nominal dollars, normal inflationary wage growth can steadily nudge borrowers into higher repayment brackets over time without any real increase in earning power. In other words, a borrower could be required to pay a higher percentage of their income toward loans in the future solely because of inflation, not because they’re actually earning more in today’s dollars.

30-Year Repayment Assistance Plan Timeline: How A $25,000 Salary Leads To Rising Payments, Even Without A Raise

Let’s take a borrower earning $25,000 a year at the start of repayment who has no expectation of real raises. If their salary grows only with inflation, their real purchasing power stays flat, even though their nominal salary increases. Using the U.S. historical average inflation rate of roughly 4% per year, here’s how that borrower’s income and required payment tier would change under the Repayment Assistance Plan over the standard 30-year repayment term:

The borrower initially owes 2% of income, which translates to about $42 per month, but by year 10, inflation alone pushes their income into the next bracket, raising their required payment to 3%, or about $93 per month. By year 20, their income climbs to roughly $55,000 and their payment jumps to 5% (about $229 per month). By year 30, their income crosses $81,000 and the Repayment Assistance Plan assigns them an 8% payment rate, meaning monthly payments of about $540 per month.

If a borrower’s salary keeps up with average inflation, but doesn’t rise beyond it, their nominal income will increase each year even though their real income (what their paycheck can buy) remains flat. Under a plan with inflation-indexed brackets, this wouldn’t matter, their payment rate would stay proportionate to their real income. But under RAP’s fixed brackets, that borrower will gradually climb into higher payment tiers over time. It’s the stealth inflation tax of student loan repayment, an effect that could surprise unwary borrowers.

Remember, all of this occurs without the borrower getting a real raise. Their lifestyle and purchasing power remain constant, yet their loan payment quadruples in real dollars. That’s because the Repayment Assistance Plan doesn’t adjust its income tiers for inflation, which means as wages rise nominally, so does the repayment burden.

Repayment Assistance Plan: Shrinking Balance But Larger Percentage Of Paycheck Going To Student Loans

This inflation creep exposes borrowers to rising costs to keep up with the economy. Without a mechanism to index RAP’s income tiers to inflation borrowers will find themselves paying more of their income over time, even if they’re no better off in real terms. In this scenario, what starts as a modest and affordable plan gradually becomes a heavier burden, not because of poor financial decisions but because of the structural design of the plan itself.

It’s worth noting that a borrowers loan balance would be shrinking over this time because RAP does require payments and forgives any leftover interest each month. By the end of 30 years, our hypothetical borrower would qualify for loan forgiveness on any remaining balance, but the road to that relief becomes progressively steeper. If the borrower had a small student loan, then they might fully pay off their loan before hitting the higher RAP tiers; however, for larger balances, this likely won’t be the case. Especially for these larger student loan balances, in the later years of repayment, the borrower would be allocating a much larger chunk of their paycheck to loans than they did in the beginning, effectively squeezing their budget harder as time goes on.

What Inflation Rate Lands You In The Highest Tier Of The Repayment Assistance Plan?

If your income starts at $25,000 and grows with inflation alone, it would take a 4.73% average annual inflation rate to push you into the top RAP bracket ($100,000+) by year 30.

That means if inflation averages just under 5% over the next three decades, a level not far from recent years, you could be required to pay 10% of your income toward loans, even if your lifestyle hasn’t improved. This insight underscores how RAP’s lack of inflation adjustment can dramatically increase repayment burdens.

Even modest inflation can significantly increase student loan payments under the Repayment Assistance Plan. Ultimately, RAP does not adjust its income tiers for inflation, so the longer you repay, the more likely you are to creep into higher brackets not because you’re earning more in absolute terms, but because your dollars are worth less.

Why This Repayment Assistance Plan Quirk Matters For Student Loan Payments and Affordability

For student loan borrowers, especially those with modest incomes, this repayment structure presents a paradox: you could be penalized for simply keeping up with inflation.

Other federal programs adjust for inflation. The IRS updates tax brackets annually; the Department of Health and Human Services updates poverty guidelines, which are used to calculate payments in SAVE and IBR. RAP, however, is currently slated to freeze its tiers in today’s dollars, creating a situation where the repayment burden intensifies over time.

Borrowers with slow wage growth or those in public service could be especially affected. What starts as a manageable payment could eventually consume a much larger share of income, all without any improvement in real earnings.

From a policy perspective, failing to index the brackets could mean that over time, RAP becomes less generous and more costly for borrowers than initially advertised. The first cohorts of borrowers might find the percentages manageable, but as inflation raises incomes across the board, future cohorts (or the same borrowers later in life) would contribute higher shares of their pay. In real terms, the government would be extracting more from borrowers’ budgets in later years without those borrowers being better able to afford it.

Could Republican Student Loan Plan Amend Repayment Assistance Plan?

In short, yes. The House Committee on Education and Workforce voted on April 29 to advance the bill. This puts the proposals on the path to approval under the budget reconciliation profess. However, the House would still need to reconcile and agree on identical provisions with the Senate before it could be signed into law. This leaves an opportunity to revise the bill and include language that would adjust the adjusted gross income tiers directly or indirectly for inflation.

The bottom line is that unless the Republican student loan plan is amended for automatic inflation indexing, student loan borrowers may find that the Repayment Assistance Plan’s affordability erodes each year.