Two Very Different Ways to Repay
Federal student loan borrowers can choose between fixed Standard Repayment (a 10-year amortization, like any other loan) and the new Repayment Assistance Plan (RAP), an income-driven plan available since July 1, 2026 that ties your payment to income rather than balance.
How RAP Payments Are Calculated
RAP sets your monthly payment as a percentage of your Annual Gross Income (AGI), rising in tiers, minus $50 per month for each dependent:
| AGI | Payment |
|---|---|
| $0 – $10,000 | $10/month flat |
| $10,001 – $20,000 | 1% of AGI |
| $20,001 – $30,000 | 2% of AGI |
| … (+1% per $10,000 tier) | … |
| $100,001 and above | 10% of AGI (maximum) |
Unlike older income-driven plans, RAP does not capitalize unpaid interest — if your payment does not cover the month's interest, the shortfall is simply forgiven each month rather than added to your balance.
Worked Example
A $35,000 balance at 6.5% interest: under Standard Repayment, the 10-year payment is about $397/month, total interest ≈ $12,690. Under RAP with a $45,000 AGI and no dependents, the payment is only $150/month (tier 4: 4% of AGI ÷ 12) — well below the roughly $190/month of interest accruing on the balance. Because RAP forgives unpaid interest each month instead of capitalizing it, the balance never grows, but it also never shrinks: after 360 payments (30 years) and $54,000 paid, the entire original $35,000 balance is still outstanding and gets forgiven in one lump sum.
The Forgiveness "Tax Bomb"
If a RAP balance is still outstanding after 360 payments (30 years), the remainder is forgiven — but under current law that forgiven amount counts as taxable income in the year it happens (a Form 1099-C), unlike Public Service Loan Forgiveness, which remains tax-free. A large forgiven balance can trigger a real tax bill in the tens of thousands of dollars, so it is worth setting money aside if you expect to reach forgiveness under RAP.
Simplified estimate. Actual federal loan servicing involves rules on grace periods, subsidized vs. unsubsidized interest, and annual income recertification not modeled here.