{"id":44641,"date":"2026-06-13T13:37:07","date_gmt":"2026-06-13T13:37:07","guid":{"rendered":"https:\/\/financialrush.com\/?p=44641"},"modified":"2026-06-13T13:37:07","modified_gmt":"2026-06-13T13:37:07","slug":"rap-student-loan-plan-may-increase-your-payments-tax-planning-can-help","status":"publish","type":"post","link":"https:\/\/financialrush.com\/?p=44641","title":{"rendered":"RAP student loan plan may increase your payments. Tax planning can help"},"content":{"rendered":"

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Pekic | E+ | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n

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With a bit of strategy, federal student loan borrowers<\/a> can lower their monthly bills on the U.S. Department of Education\u2019s new repayment plan<\/a>, coming July 1.<\/p>\n

Under the Repayment Assistance Plan<\/a>, or RAP, borrowers pay a higher percentage of their income as their earnings grow. That means that finding ways to lower your pretax income by even a small amount can reduce your monthly student loan payments, said\u00a0Landon Warmund<\/a>, a certified financial planner and certified student loan professional at Reliant Financial Services in Kansas City, Missouri.<\/p>\n

\u201cThere\u2019s definitely some unique opportunities with it,\u201d said Warmund, a member of CNBC\u2019s\u00a0Financial Advisor Council<\/a>.<\/p>\n<\/div>\n

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Read more CNBC personal finance coverage<\/h2>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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Figuring out how to reduce your monthly loan bill under RAP may be especially important for the millions of borrowers now forced to leave the Biden-era Saving on a Valuable Education, or SAVE, plan. A federal appeals court\u00a0ended<\/a> SAVE<\/a>, the most affordable repayment plan to date, earlier this year. <\/p>\n

Student loan borrowers need to exit SAVE within roughly 90 days of July 1<\/a>, and many will see higher required payments under other plans. <\/p>\n

\u201cBorrowers can look to avoid these payment jumps by exploring what pre-tax benefits they have available to them at work to reduce their taxable income, which keeps them under key income numbers,\u201d Warmund said.<\/p>\n

Here\u2019s how borrowers can try to reduce their payments under RAP. <\/p>\n<\/div>\n

How RAP calculates your monthly bill <\/h2>\n
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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. <\/p>\n

Current income-driven repayment plans, or IDRs, offer certain very low-income borrowers a $0 monthly payment.<\/p>\n

RAP also doesn\u2019t shield a portion of a borrower\u2019s income for necessary expenses in its bill calculation, as other IDR plans do; instead, it determines the payment based on\u00a0adjusted gross income<\/a>. AGI is your total earnings before taxes, minus certain deductions.<\/p>\n

For those who enroll in RAP, \u201ceven a single dollar difference in AGI could lead to a several-hundred-dollar impact in regard to total student loan payments over a year,\u201d Warmund said. <\/p>\n

For example, due to RAP\u2019s formula, a student loan borrower with an AGI of $59,999 a year could pay about $50 a month, or $600 a year, less than a borrower who has a $60,000 AGI, he said. <\/p>\n<\/div>\n

How to reduce your adjusted gross income<\/h2>\n
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There are several ways that borrowers may be able to reduce their AGI, and therefore lower their monthly RAP bill, said Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, a nonprofit that assists borrowers.<\/p>\n

Directing a portion of your paycheck to your workplace 401(k) retirement plan or a traditional IRA \u2014 or increasing your contributions to these accounts \u2014 is one method, Rodriguez said. Keep in mind: To lower your AGI, those contributions need to be pretax or deductible, so money put into a Roth IRA or Roth 401(k) wouldn\u2019t help here. <\/p>\n

If a single student loan borrower contributed an additional $1,001 in a year to a pretax retirement account, lowering their AGI to $69,999 from $71,000, their monthly payment on RAP would fall to $350 from $414, Warmund said. <\/p>\n<\/div>\n

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The RAP plan does have a lot of nice benefits if you plan accordingly. <\/p>\n

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\u00a0Landon Warmund<\/p>\n

Certified financial planner<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/blockquote>\n

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Making pretax contributions to a health savings account, or HSA, or a flexible spending account, or FSA, are additional options to bring down your taxable wages, Rodriguez said. Companies can offer several kinds of FSAs, including for qualifying healthcare<\/a>, dependent care<\/a> and commuting expenses.<\/p>\n

Meanwhile, if you\u2019re self-employed, claiming legitimate business expenses and deductions on your Schedule C can have the same outcome, Rodriguez said. <\/p>\n

\u201cThis can include ordinary and necessary business costs, retirement contributions and health insurance deductions,\u201d she said. <\/p>\n

Other \u201cabove-the-line\u201d deductions can also lower your AGI, including the break on student loan interest<\/a>. <\/p>\n<\/div>\n

Per-dependent savings of $50<\/h2>\n
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Under the RAP plan, federal student loan borrowers can also get their monthly bill reduced by $50 for every dependent they claim, Rodriguez said. Dependents are often minor children, but can also include siblings or other relatives in specific cases<\/a>, according to IRS guidelines. <\/p>\n

Those savings should be automatic and tied to your tax filing. <\/p>\n

\u201cIt\u2019s based on the number of dependents the borrower claims on their federal tax return,\u201d she said. <\/p>\n<\/div>\n

You may still pay more over time <\/h2>\n
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Even if you\u2019re able to lower your monthly payment under RAP, you may end up paying more than you would on other plans over the life of the loan, Rodriguez said. That\u2019s because RAP leads to student loan forgiveness only after 30 years, compared with the typical 20- or 25-year timeline on other IDR plans.<\/p>\n

As a result, some borrowers may want to compare their monthly bill<\/a> and total payment amount on RAP to other repayment plans. However, RAP will be the only IDR plan available to student loan borrowers who take out a loan after July 1. <\/p>\n<\/div>\n

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Borrowers with existing federal student loans may maintain access to\u00a0some current IDR plans<\/a>, including the\u00a0Income-Based Repayment<\/a>\u00a0plan, or IBR. IBR borrowers are eligible for debt forgiveness after 20 years or 25 years, depending on the age of their loans. <\/p>\n

While the\u00a0Income-Contingent Repayment<\/a>\u00a0plan, or ICR, and\u00a0PAYE<\/a>, or the Pay As You Earn plan, will also remain available to current borrowers until mid-2028, neither program now results in debt forgiveness. The only reason you\u2019d want to be in either plan, then, is if it brings you the lowest monthly payment, Rodriguez said. <\/p>\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

\u201cIf RAP will be your lowest option, wait for it to become available,\u201d Rodriguez said. \u201cBut be mindful of the plan\u2019s implications.\u201d <\/p>\n<\/div>\n

Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.<\/a><\/div>\n<\/div>\n\n
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