A borrower who signs a federal Direct Loan promissory note on July 1, 2026, will face a choice that did not exist a month earlier: the Repayment Assistance Plan, known as RAP, or a new Tiered Standard plan with fixed payments. That is the entire menu. The four income-driven repayment tracks that have defined federal student lending for more than a decade, IBR, PAYE, ICR, and the court-blocked SAVE plan, will no longer accept new enrollees after that date.
The change comes from the One Big Beautiful Bill Act, the FY2025 budget reconciliation law signed as Public Law 119-21. It rewrites the income-driven repayment section of the Higher Education Act, replacing the old plan structure with RAP and setting a timeline to phase out legacy options entirely. For the roughly 43 million Americans carrying federal student debt, the practical question is straightforward: Will this new system cost them more, less, or about the same each month? The answer depends on details that are still being finalized.
How RAP works
RAP follows the basic logic of earlier income-driven plans: borrowers pay a percentage of what they earn above a certain threshold, and any remaining balance is eventually forgiven. But the specifics diverge in ways that matter.
Monthly payment cap: 10% of discretionary income. Discretionary income is the portion of a borrower’s adjusted gross income that exceeds a multiplier of the federal poverty guidelines. Under IBR and PAYE, that multiplier was 150% of the poverty line. The SAVE plan, before federal courts blocked it in 2024, had raised it to 225%, which shielded more income from the payment calculation. The statute creating RAP does not specify the exact multiplier in borrower-facing terms, and as of June 2026, the Department of Education has not published the final figure.
To see why that multiplier matters so much, consider a borrower earning $40,000 a year with $35,000 in undergraduate debt. In 2026, the federal poverty guideline for a single-person household in the contiguous United States is approximately $15,650. Under the old IBR formula, the 150% threshold would shield roughly $23,475 of income, leaving about $16,525 as discretionary income. Ten percent of that, divided over 12 months, produces a monthly payment of roughly $138. If the Department sets RAP’s multiplier at the same 150% level, the payment would land in that same range. But if the multiplier is set lower, say at 100% of the poverty line, the shielded amount drops to roughly $15,650, discretionary income rises to about $24,350, and the monthly payment climbs to roughly $203. Under the SAVE plan’s 225% threshold, by contrast, the shielded amount would have been about $35,213, leaving only $4,787 as discretionary income and producing a monthly payment of roughly $40. The gap between $40 and $203 on the same salary illustrates why the multiplier is the single most consequential number the Department has yet to announce.
Forgiveness timeline: 30 years. This is the longest forgiveness window Congress has ever attached to an income-driven plan. Under IBR, borrowers with undergraduate loans could reach forgiveness in 20 years. PAYE offered the same 20-year path. The SAVE plan, had it survived, would have forgiven balances as low as $12,000 in principal in as few as 10 years. Under RAP, a borrower who enters repayment at 22 would not see forgiveness until age 52. That extra decade of payments, compared with the 20-year IBR and PAYE timelines, means a borrower in the example above would make roughly 120 additional monthly payments before any remaining balance is discharged.
Public Service Loan Forgiveness compatibility. Payments made under RAP will count toward Public Service Loan Forgiveness, according to the statutory text of Public Law 119-21, which preserves the separate 10-year forgiveness path for qualifying government and nonprofit employees. For public-sector workers, PSLF remains the faster route.
The Tiered Standard plan
RAP is not the only new option. The law also creates a Tiered Standard plan, which is the alternative for borrowers who do not want or do not qualify for income-driven payments. Unlike RAP, the Tiered Standard plan uses fixed monthly payments that are not tied to income. Instead, payments are structured in tiers that start lower and step up over the life of the loan, somewhat like a graduated repayment schedule. The idea is to give early-career borrowers smaller payments at the outset while ensuring the full balance is retired within a set term. As of June 2026, the Department of Education has not published the specific tier structure, step-up intervals, or maximum repayment term for this plan. Until those details are released, borrowers cannot make a direct comparison between the Tiered Standard plan and RAP to determine which option would cost less over time.
What happens to the old plans
The transition is not instantaneous. Borrowers who already hold federal loans and are enrolled in a legacy income-driven plan can remain there during a statutory transition window. No new borrowers will be allowed into IBR, PAYE, ICR, or any other legacy track after July 1, 2026. The reconciliation law includes language establishing a sunset for those older plans on July 1, 2028, and the Department of Education has indicated they will be fully discontinued at that point. However, the Department has not yet published final implementing regulations specifying exactly how that closure will work for every borrower category, so the precise mechanics of the 2028 cutoff should be treated as subject to forthcoming administrative guidance rather than fully settled operational detail.
The millions of borrowers who were placed in administrative forbearance after courts blocked the SAVE plan in 2024 face a particularly uncertain path. As of June 2026, the Department has not published detailed guidance explaining how those borrowers will be transitioned into RAP or another option. That group, many of whom have been in limbo for nearly two years, still does not have a clear timeline for resolution.
Borrowers with mixed portfolios present another unresolved problem. Someone who took out loans in 2024 and borrows again in 2027 will hold debt that straddles two regimes: older loans potentially eligible for a legacy plan during the transition window, and newer loans that must enter RAP or the Tiered Standard plan. The statute is clear that new loans fall under the new system, but it does not spell out whether servicers will consolidate everything into one plan or allow borrowers to maintain two tracks simultaneously. Operational guidance on this question has not been released.
The gaps that still need filling
Several consequential details remain unresolved, and each one will directly affect household budgets.
The discretionary income formula. The poverty-line multiplier that defines how much income is shielded from the payment calculation has not appeared in any public-facing materials from the Department of Education. Until it does, no one can calculate an exact monthly payment under RAP.
Interest treatment. Under the SAVE plan, the government subsidized all unpaid accruing interest, meaning borrowers whose payments did not cover the full interest charge would not see their balances grow. The statute creating RAP does not include an equivalent provision, and the Department has not clarified whether any interest subsidy will apply. If it does not, borrowers making small income-driven payments could see their loan balances increase over time, a problem known as negative amortization that plagued earlier IDR plans.
Tax treatment of forgiven balances. Under a temporary provision in the American Rescue Plan Act of 2021, student loan forgiveness was excluded from taxable income through the end of 2025. That exclusion has expired. Unless Congress acts again, any balance forgiven under RAP after 30 years would be treated as taxable income in the year of discharge, potentially creating a large, unexpected tax bill. The reconciliation law that created RAP did not address this issue.
Income recertification. Under prior plans, borrowers had to recertify their income annually, a process that tripped up millions and led to payment spikes or lost progress toward forgiveness. The Department has not yet explained how often RAP will require recertification, whether it will pull tax data automatically from the IRS, or how changes in family size will be handled.
Distributional impact. No Congressional Budget Office estimate isolating RAP’s long-term effects on low-income borrowers has been published. Broader cost analyses of the reconciliation law exist, but they do not break out how the 30-year forgiveness timeline compares with shorter windows under prior plans in terms of total interest paid or default rates.
What borrowers should actually do before July 1
The most useful thing any borrower can do in June 2026 is separate what is locked into law from what is still being designed.
Three things are settled: New Direct Loan borrowers after July 1, 2026, will choose between RAP and the Tiered Standard plan. RAP will cap payments at 10% of discretionary income with forgiveness after 30 years. Legacy income-driven plans will close to new entrants immediately and are set to sunset by July 1, 2028, pending final implementing regulations.
Nearly everything else is still in motion. The monthly payment formula, mixed-portfolio handling, recertification mechanics, interest treatment, and the tax consequences of forgiveness all depend on administrative decisions that have not been finalized in borrower-facing form. Financial-aid offices, legal-aid organizations, and nonprofit groups like the National Consumer Law Center are expected to publish detailed borrower guides once the Department of Education releases full operational guidance.
For any claim about RAP that a borrower encounters online or from a loan servicer, two questions will cut through the confusion: Is this grounded directly in the enacted statute, or is it someone’s projection about how the Department will fill in the blanks? And does it apply to all federal borrowers, only to those with new loans after July 2026, or only to borrowers still enrolled in a legacy plan that is about to close? Those filters will matter more than ever as the federal student loan system enters its largest structural overhaul in a generation.
