RAP Is Here: Which Student Loan Plan Actually Saves You Money?

Becca Hartwell: Ha, ha, ha, ha, ha, ha, ha, ha, ha. Maya: Okay, so get this. Today is July 1st, which means 7.5 million student loan borrowers just got a ticking clock on their phones and they may not even know it yet. And not a fun countdown. More like act now or your payment jumps from zero to several hundred dollars overnight. Right, right, right. The SAVE plan is officially done. Forbes and Axios both covered it. Services start sending 90-day notices. This is today, in waves. So this episode is basically an emergency broadcast for your wallet. We are walking you through every decision you need to make before that clock runs out. And there is a lot. We're breaking down the brand new RAP, Repayment Assistance Plan, what it actually costs with real dollar amounts, none of this abstract percentage stuff. We're also getting into IBR versus RAP because, and I can't. I cannot stress this enough. Newer is not always better. For some borrowers, that old plan is worth holding on to. Plot twist! Massive plot twist. And then there's the hidden rule. Borrowing even one new federal loan after today can wipe out your options on every loan you already have. On all of them, a $5,000 certificate program loan could blow up the forgiveness clock on $40,000 in existing debt. Yeah, we'll get into exactly how that happens, plus how marriage and kids reshape what you actually owe every month. And we are closing with three concrete things you can do before September. No jargon, just steps. Alright, seven and a half million borrowers, 90 days, and the stakes are real. Kick us off. Let's go. First up, what today's notices actually mean and why doing nothing is the most expensive. expensive choice you can make. Okay, so picture this. You open your email this morning, you've got a message from your loan servicer, and it says you have 90 days to pick a new repayment plan or else. And or else is doing a lot of heavy lifting in that sentence, right? Because the other option is standard repayment, fixed payments based on your loan balance, not your income. For a lot of people, that's hundreds of dollars more a month overnight. So what's actually happening here? Is this new news or has this been building for a while? a while. Both, honestly. Forbes reported the Education Department just released new details on the timeline last week, but SAVE has been legally dead since March. A federal court entered a final order ending it, after a settlement between the Education Department and Missouri. What's new is the clock is officially ticking right now. How many people are we talking about? 7.5 million borrowers. Starting today, July 1st, loan servicers are sending out formal 90-day notices in waves. waves. Axios covered this yesterday. New group every two weeks. And the borrowers who've been in SAVE the longest get notified first. Okay, so if I get my notice today, my deadline is September 29th. But if my notice comes later, your clock starts later. Exactly. Forbes reported the Education Department's own court filing says no borrower will be required to move before September 2026 at the earliest. But if you're in a later wave, you could have until fall. Okay, so there's a real range. Real Range The College Investor ran the math on this. If they're doing tranches of roughly 750,000 borrowers every two weeks, some people's deadlines could stretch until late 2026. Okay, but, and this is what I know a lot of people are thinking, what if I just don't do anything? Then your servicer does it for you. They drop you into Standard Repayment. Payments are based on your balance, and if you miss those, delinquency. Then default. Speaker 3: Wow! Maya: And the Department of Treasury is already ramping up collections this fall. Default. So wait and see is not a strategy here. Doing nothing is the worst option available. Half of all safe borrowers were paying zero dollars a month. Under standard repayment, those same borrowers could be looking at hundreds of dollars starting on day 91. Okay, so zero to hundreds. That's a lot of financial whiplash. And the notice could be sitting in a spam folder right now. The College Investor flagged that borrowers who haven't logged into their service or portal recently. may have outdated contact info on file, meaning the notice goes nowhere and the clock still runs. Wait, so you could miss the deadline without even knowing you had one? Yeah, yeah, yeah, that's the trap. So the move is check your email, check studentaid.gov, make sure your address and contact info are current today, today, not this week, today. And then here's where it gets interesting. You actually have to pick something. RAP just launched July 1st. IBR is still on the table. The options are real, but the math on each one is very different depending on what you earn, which raises the question, if you're staring at these plan names for the first time, what does the payment actually look like in dollars? Because that's the number people need, and that's exactly where we're going next. So let's talk dollars and cents. What does RAP actually charge you every month? Okay, so the College Investor ran the numbers, and I want to use a real scenario because the math is wild. Single borrower earning $55,000 a year, no kids. The person listening to this right now, keep going. Under RAP, that person pays about $229 a month. That's $55,000 times 5%. divided by 12. Wait, 5%? Where does 5% come from? So RAP doesn't use your discretionary income, meaning it doesn't carve out a chunk of your paycheck before calculating your bill. It charges a percentage of your full adjusted gross income. Every dollar gets counted. At $55,000, you land in the 5% bracket. And under SAVE, that same person could have been paying... what, like 50 or 60 bucks a month? Maybe zero? Possibly zero. SAVE shielded the first roughly $35,000 of income for a single filer before it even touched your payment. RAP starts from dollar one. Dollar one. No free slices of pizza. Got it. Exactly. And Fidelity's guidance flagged something else people are missing. The zero dollar monthly payment is gone permanently. Even if you're earning almost nothing, you owe at least $10 every month under RAP. So for everyone who had a $0 SAVE bill, and savingforcollege.com says that's been about 7 out of 10 people on income-driven plans at some point, that floor just jumped. $10 minimum every month, no exceptions. Becca Hartwell: Okay, but wait for it because RAP does do two things that older plans didn't. Ask me the thing. All right, so does my balance actually go down every month no matter what? Yes, two ways. First, if your $229 payment doesn't cover all the interest that's building up that month, the government just wipes the difference. Your balance cannot grow. So no more watching your loan get bigger while you're paying it. Yeah, that was the nightmare of older plans. Right. And second, if your payment doesn't cut the actual principal by at least fifty dollars, the government chips in up to fifty to make sure it does. The College Investor calls it a matching principal reduction. Okay, okay, okay. So your balance is moving in the right direction every single month, guaranteed. Guaranteed, which is real. The old SAVE had similar interest protection, But the $50 principal match is new. Hmm. So the trade-off is you're probably paying more than you were on SAVE each month, but your debt is actually shrinking instead of just sitting there. That tracks for a lot of borrowers. The question is whether that math holds up compared to your other options, because IBR is still on the table for anyone with pre-July 2026 loans. And that's exactly where it gets complicated, because newer doesn't always mean cheaper, and for some borrowers, IBR's forgiveness clock runs 10 years faster than RAP's 30-year timeline. So should you just pick RAP and move on, or is there a better option sitting right there? Okay, so get this. I spent the last week assuming newer automatically means better. RAP is shiny and new, so obviously pick RAP, Right? Oh no, where is this going? Wrong. Plot twist. For a lot of pre-2026 borrowers, IBR might actually be the smarter call. And the College Investor lays this out really clearly. IBR's forgiveness clock is 20 years if you borrowed after July 2014, or 25 years for older loans. Maya: It's RAP 30 years full stop. So you could be on RAP paying less per month, but grinding for an extra 10 years to reach forgiveness. Becca Hartwell: Cool deal. Maya: And Yahoo Finance flagged the trap that really gets people. If you switch to RAP and later want to go back to IBR, those RAP payments don't count toward IBR's forgiveness clock. You don't start from zero, but those months just disappear from the IBR countdown. Becca Hartwell: Wait, so you can't game it? Like ride RAP for lower payments and then jump back to IBR's fast. Maya: Faster forgiveness? Nope. That loophole died before it ever opened. Student Loan Planner confirmed it explicitly. Okay, so who actually benefits from IBR over RAP? Higher balance, lower income. Someone who is genuinely counting on hitting forgiveness in 20 years. The extra decade under RAP could mean tens of thousands more in total payments. And the monthly payment difference at lower incomes can actually be pretty close. Finance wonk ran a same borrower scenario and found at and at fifty thousand AGI the monthly gap was only nine dollars, but the forgiveness gap was ten years. A nine dollars a month ten years of your life. Speaker 3: Wow. Maya: Do the math on that. Now flip this completely. If you work for a non profit or a government employer and you're pursuing Public Service Loan Forgiveness, RAP absolutely qualifies. PSLF still wipes your balance after a hundred and twenty payments, which is ten years. Right. And Fidelity confirmed that tiered standard plan, the other new option? Option does not qualify for PSLF at all. So if PSLF is your path, RAP is the move, full stop. So the single question that cuts through all of this, ready? Becca Hartwell: Oh, I'm ready. Maya: Do you plan to borrow any new federal student loans after today? Because if the answer is yes, that changes everything, and I mean everything about which plan you can even access. And that's exactly where the story gets weird for anyone thinking about going back to school. OK, so the question I ended on last segment, whether you're planning to borrow any new federal loans after today, that question has a hidden tripwire most people completely miss. Right, and this one catches grad students and career changers off guard constantly. So here's the rule, if you take out any new federal loan after July 1st, 2026, even one, RAP becomes the only income-driven plan available for For every loan you have, including the ones you borrowed years ago. Wait, wait, wait. So it's not just the new loan that gets locked into RAP. All of it. Every dollar. The Congressional Research Service confirmed this directly. For borrowers with existing loans who take out new loans on or after July 1st, 2026, the RAP will be the only IDR plan available for all of their Direct loans, regardless of when they were borrowed. Regardless of when they were borrowed. That's the phrase that should make it... Make everyone stop. Picture this. You've got $40,000 in loans. You're on IBR. Forgiveness clock is ticking. You decide to go back to school for a certificate program, take out $5,000 for one semester, and boom, that whole $40,000 just got pulled into RAP. IBR access? Gone. The 20-year forgiveness clock you've been building? Replaced by 30 years under RAP. On $5,000. I know, it is almost cruel. And people going back to school part-time, they're thinking about tuition, scheduling, child care. Nobody is thinking, oh, I should check what this loan does to my Repayment Assistance Plan. The most common mistake? Accepting the loan offer automatically because it's the default on your financial aid award letter. You don't question it. So, here is the one thing you do this week, before you accept any new federal loan offer. Call your servicer and ask them directly what borrowing after July 1st does to your current Repayment Assistance Plan. One phone call. Seriously. And actually, even if going back to school isn't on your radar, your household situation affects this math in ways most people haven't considered yet. Yeah, and that's where things get personal fast. And speaking of household math, if you just got married or you have kids, this next part changes your whole calculation. Becca Hartwell: Oh, okay. So let me just say this for the person who recently got married and is sitting there like, wait, does my spouse's income count now? Maya: Yep. Under RAP, if you file taxes jointly, your payment is based on your combined household income, even if only one of you has student loans. Becca Hartwell: That is, okay, so say you earn $45,000 and your spouse earns Maya: earns $80,000, the RAP calculator doesn't care that the loans are only yours. It sees $125,000 combined AGI, and your payment reflects that. According to the College Investor, joint filers where only one spouse has loans actually face the highest RAP payments of any Becca Hartwell: Any married borrower scenario. That's brutal. The College Investor confirms it. There's no spousal loan reduction to soften it if your partner has zero debt. Maya: Okay, but wait, so filing separately could fix this? Becca Hartwell: Filing separately drops your spouse's income out of the calculation entirely. But, and this is the common mistake, people do it without running the tax math first. Maya: Right, right, because filing separately can cost you credits. Student loan interest deduction, Earned Income Credit. Becca Hartwell: Gone. So you might save $300 a month on your loan payment and lose $4,000 at tax time. That's not a win. You have to model both scenarios side by side before you decide anything. Maya: Mm-hmm. Becca Hartwell: 30 minutes of math could save you thousands. Now, if you have kids, the math shifts in a different direction entirely. Plot twist, right? NerdWallet confirmed. Under wrap, each dependent you claim on your tax return reduces your monthly payment by $50. dollars per month. So two kids, that's $100 off every single month, $1,200 a year. A borrower earning $60,000 with two dependents has a meaningfully different bill than Yeah. a childless borrower at the same income. Maya: And the dependents you can claim depends on how you filed. So filing separately could also shrink the number of kids you count. Becca Hartwell: Exactly, which is another reason you don't just pick a filing status to lower the loan payment without thinking about everything it does. Maya: everything attached to it. So the action here is clear. Before you switch plans, run both scenarios, jointly, separately, with and without dependents counted. EDCAP has a free wrap calculator built for this, punch in your numbers before you make any move. That is the homework this week. And speaking of knowing your numbers before you act, next we're going to tell you exactly where to go and what to do with the result. Speaker 3: Bye. Maya: Okay, three things to do this week. Hit them. Okay, first, log into studentaid.gov right now and confirm your email address is current. Notice is a rowing out by email. Wrong address and the clock runs out without you knowing. And that deadline doesn't care that your inbox was wrong. Exactly. Second, submit your plan change application early. Speaker 4: Yeah. Maya: Before July 1st, servicers already had 576,000 IDR applications sitting in the queue. Add 7.5 million SAVE borrowers switching at once? It's a traffic jam, a massive one. Get in line now, not after your notice lands. And third, before you pick a plan, whether that's RAP, IBR, whatever, run the loan simulator at studentaid.gov or EDCAP has a free RAP calculator. Takes 10 minutes and it's free. And if you're on the fence, like our 55k listener or the or the person going back to school, or the newlywed we talked about, those tools will tell you which plan actually fits your situation. Because switching into the wrong plan isn't catastrophic, but switching out of RAP back to IBR, you lose those months toward forgiveness. That math matters. Do the 10 minutes of homework. That's the whole thing, honestly. The point isn't to get this perfect. It's to not let someone else decide for you. Side for you by doing nothing. Log in, apply early, run the numbers. Three steps, less than an hour. You've got this. The system is messy, but you're Speaker 5: Yeah. Maya: not helpless in it. Okay, so here's where we land. If your in-SAVE doing nothing is the actual worst move you can make right now, the auto-enrollment into Standard Repayment scenario we walked through, that one stuck with me. Going from zero to hundreds overnight is not a drill. And the $229 a month math on a $55,000 balance, Becca Hartwell: Mm-hmm. Maya: that's the number I want people to write down. That tracks. The interest waiver in the $50 principal match make RAP. RAP a real contender, but the IBR forgiveness clock thing? Don't sleep on that one. One concrete thing before we go. Update your contact info on StudentAid.gov today. The notice clock is already running whether you got the email or not. That's the rundown. If this episode answered something you'd been putting off, send it to someone in the same boat. New episodes drop every Tuesday. Follow wherever you listen and we'll see you next week. Speaker 6: You