The department cast the new repayment options as “simpler” ways to manage their student loan obligations than the prior array of “confusing repayment options with varying eligibility requirements and payment structures.”
With RAP, monthly payments are based on a borrower’s income. And on-time monthly payments can enable borrowers to get unpaid monthly interest waived, “ensuring interest does not continue to accumulate when they are meeting their repayment obligations,” the department stated.
Monthly payments are between 1 and 10 percent of a borrower’s income, depending on how much they earn. “In addition, their payments will be reduced by $50 per month for each of their dependents,” the department states. “Monthly payments can be as low as $10.”
RAP comes with a matching principal payment benefit.
If a borrower pays down the loan principal by less than $50 on time monthly, the federal government will contribute up to $50 each month toward the principal balance. “Together,” the department continued, “the interest waiver and matching principal payment help borrowers make meaningful progress toward paying down their loan balance each month.”
Under the Tiered Standard repayment plan, borrowers can select fixed repayment terms of 10, 15, 20, or 25 years based on the loan amount. “Borrowers with higher loan balances will have longer repayment terms, helping make monthly payments more affordable,” the department states.
Not everyone buys the claim that RAP and Tiered Standard will make things easier.
The Institute for College Access and Success says its research shows that under RAP, the median U.S. household will see their premiums “skyrocket by $400 per month” and that RAP is “likely to spike defaults and harm low-income borrowers.”
TICAS says borrowers leaving the SAVE Plan, which is being phased out, will “be left with fewer, more expensive options.”
Preston Cooper, a senior fellow and student loan expert at American Enterprise Institute, disagreed.
“While President Biden's SAVE plan slashed payments to zero for many borrowers - essentially disguising a loan forgiveness plan as a loan repayment plan - RAP actually does require borrowers to pay their loans,” Cooper said in a statement to The EDU Ledger. “However, RAP provides help with interest and principal for low-income borrowers, ensuring that borrowers who make their payments on time always see their balances fall. This enables faster repayment while keeping payments affordable.”
