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Boy_anupong | Moment | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Millions of federal student loan holders<\/a> will have access to two new repayment options<\/a> starting July 1, due to changes included in the One Big Beautiful Bill Act<\/a>. As a result of the legislation, some student loan repayment plans are also going away. <\/p>\n The Repayment Assistance Plan, or RAP, is the U.S. Department of Education\u2019s latest income-driven repayment plan, or IDR, meaning it sets borrowers\u2019 monthly bills at a share of their income. <\/p>\n The other new option is the Tiered Standard Plan, which includes fixed payments spread over several different timelines, based on a borrower\u2019s total debt. <\/p>\n<\/div>\n \u201cBorrowers are facing a great deal of confusion and anxiety ahead of the changes,\u201d said Jaylon Herbin, \u200c<\/em><\/a>director of federal campaigns at the Center for Responsible Lending, a consumer advocacy organization. <\/p>\n \u201cWe\u2019re encouraging borrowers to carefully review all available repayment options before enrolling in a new plan,\u201d Herbin said. <\/p>\n Here\u2019s what to know about the two new repayment options coming in July, and how to decide the right plan for you. <\/p>\n<\/div>\n RAP is an IDR plan, but it has several features that differ from the Education Department\u2019s other IDR options. <\/p>\n Congress created the first IDR plans back in the\u00a01990s<\/a>\u00a0to make student loan borrowers\u2019 bills more affordable. Historically, the plans cap people\u2019s monthly payments at a share of their discretionary income and cancel any remaining debt after a certain period, typically 20 years or 25 years.<\/p>\n<\/div>\n Under RAP, monthly payments will typically range from 1% to 10% of your earnings; the more you make, the bigger your required payment. There will be a minimum monthly payment of $10 for all borrowers. Current IDR plans offer certain very low-income borrowers a $0 monthly payment.<\/p>\n RAP also doesn\u2019t shield a portion of a borrower\u2019s income in its bill calculation like other IDR plans do, but rather determines their bill based on so-called\u00a0adjusted gross income<\/a>. AGI is your total earnings before taxes, minus certain deductions. <\/p>\n RAP leads to student loan forgiveness after 30 years, compared with the typical 20-year or 25-year timeline on other IDR plans.<\/p>\n But RAP comes with a few perks: Federal student loan borrowers get $50 off their monthly bill per qualifying dependent, for example. Those who are keeping up with their bills but aren\u2019t making progress paying down their principal can also qualify for a small subsidy from the Education Department.<\/p>\n \u201cIn some cases, the feds will even throw in some dollars to reduce principal if the billed payment doesn\u2019t do that on its own,\u201d said Betsy Mayotte, president of\u00a0The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate repayment. <\/p>\n Plus, payments made under RAP will give borrowers credit on the decade-long timeline to debt relief under the Public Service Loan Forgiveness program. PSLF allows not-for-profit and government employees to have their student loans excused after a decade. <\/p>\n<\/div>\n Borrowers with existing federal student loans will maintain access to\u00a0some current IDR plans<\/a>, including the\u00a0Income-Based Repayment<\/a> plan, or IBR. Under the terms of IBR, borrowers pay 10% of their discretionary income each month\u00a0if their loans were taken out on or after July 1, 2014. That share rises to 15% for borrowers with loans before that date. The newer borrowers are eligible for debt forgiveness after 20 years, and older borrowers after 25 years.<\/p>\n While the\u00a0Income-Contingent Repayment<\/a>\u00a0plan, or ICR, and\u00a0PAYE<\/a>, or the Pay As You Earn plan, remain available to current borrowers for a period, neither program culminates in debt forgiveness anymore. The only reason you\u2019d want to be in either plan, then, is if it brings you the lowest monthly payment, said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, a nonprofit that assists borrowers. <\/p>\n<\/div>\n Borrowers are facing a great deal of confusion and anxiety ahead of the changes. <\/p>\n Jaylon Herbin<\/p>\n director of federal campaigns at Center for Responsible Lending<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/blockquote>\n If that\u2019s the case, you can remain in ICR or PAYE until the plans expire on July 1, 2028. Afterward, if you switch into IBR or RAP, you\u2019re entitled to credit toward forgiveness for your previous payments.<\/p>\n One other difference to RAP: If you transfer from RAP to another IDR plan, like IBR, the payments you made on RAP won\u2019t count on your timeline toward loan forgiveness, Mayotte said.<\/p>\n \u201cWhile payments on the existing plans, such as IBR, PAYE and ICR count towards the RAP\u2019s 30-year forgiveness, RAP payments don\u2019t count towards the other plans\u2019 forgiveness timeline,\u201d she said. <\/p>\n<\/div>\n The current Standard Plan is fairly simple: Borrowers typically have their debt divided into fixed payments\u00a0over 10 years<\/a>. It\u2019s often the fastest option for people to pay off their student debt, compared with the Education Department\u2019s plans that base payments on a borrower\u2019s income. <\/p>\n However, the new Tiered Standard Plan<\/a> will spread your debt into fixed payments over one of four time frames, depending on what you owe.<\/p>\n<\/div>\n Those who\u2019ve borrowed up to $24,999 will still have a 10-year repayment term. But those who owe between $25,000 and $49,999 will pay their debt back over 15 years; a balance ranging from $50,000 to $99,999 will be paid back over 20 years; and a debt over $100,000 will lead to a 25-year repayment term.<\/p>\n<\/div>\n To decide on the best plan for you, compare the different monthly payments under the available options as well as the total you\u2019d pay over the loan term and when you\u2019ll emerge from the debt, consumer advocates say. Keep in mind that if you take out any federal student loans after July 1, you\u2019ll be left with just two options across all your debt: RAP and the Tiered Standard Plan.<\/p>\n Between the two new repayment plans, \u201cif your income is lower and your debt is higher, you should prefer RAP,\u201d said higher education expert Mark Kantrowitz.<\/p>\n Those with smaller federal student loan balances may prefer the shorter repayment timeline under the Tiered Standard Plan, he said. <\/p>\n But if you\u2019re pursuing the Public Service Loan Forgiveness program, you\u2019ll get your debt forgiven after just 10 years on RAP \u2014\u00a0or 20 years sooner than when the plan otherwise culminates in loan forgiveness. <\/p>\n<\/div>\nRead more CNBC personal finance coverage<\/h2>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
RAP <\/h2>\n
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Tiered Standard Plan <\/h2>\n
Deciding between repayment plans <\/h2>\n
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