The U.S. Department of Education introduced the Repayment Assistance Plan, an income-driven repayment option that became available July 1. Under RAP, monthly payments are typically capped at 1% to 10% of a borrower’s income, with loan forgiveness available after 30 years. Nearly 46,000 borrowers had enrolled in the plan by early in the month.
The plan includes two primary benefits designed to prevent borrower balances from exceeding original loan amounts due to interest accrual. First, the department waives any monthly interest not covered by the payment itself. Second, if a borrower’s on-time payment reduces the principal balance by less than $50, the department contributes up to $50 toward principal reduction. However, both benefits are forfeited if a payment is even one day late, according to higher education experts.
Late payments under RAP have additional consequences not present in other income-driven repayment plans. Missed payments do not count toward the 30-year forgiveness timeline or toward Public Service Loan Forgiveness, which requires 120 on-time payments for public sector employees. Unlike some alternative plans, RAP provides no grace period before a payment is classified as late.
Borrowers can retain the plan’s $50 monthly dependent discount even if they miss a payment, but this does not offset the loss of other key protections. The Education Department is encouraging automatic payments through a 1-percentage-point interest rate reduction available through June 30, 2028, provided borrowers enroll by the end of September. However, some borrowers have reported billing errors with automatic payments, necessitating account monitoring. If income decreases, borrowers should notify their servicer to adjust payments accordingly and avoid delinquency.
Article Attribution | Read More at Article Source
Article summary produced by Claude AI