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As many of you are aware, the student loan landscape has changed a lot in the last few months after things hadn’t really changed in the last five years. For those of you that have paid off your loans, or refinanced at all time low rates, you can sit back, smile, and relax. For the rest of you, now is time to make a decision on how you want to handle your loans for at least the next 12 months. This will especially affect anybody who has been on an Income-Driven Repayment (IDR) plan for the last several years.
What’s changing with income-driven repayment plans?
- The One Big Beautiful Bill is getting rid of the SAVE, PAYE, and ICR plans. If you’re currently on one of these repayment plans, you’ll be required to switch by July 1st, 2028.
- Starting July 1st, 2026, there will only be two income-driven repayment plans available to past borrowers: RAP (Repayment Assistance Plan) and IBR.
- New borrowers, or those whose first loan will be taken out after July 1st, 2026, will only have RAP as an option.
What is the Repayment Assistance Plan (RAP)?
- The RAP is essentially replacing the SAVE plan. This plan will be available starting July 1, 2026.
- Similar to SAVE, any unpaid interest that is left over each month after your payment will be waived. So your balance won’t balloon while you’re making income-based payments.
- The forgiveness timeline for RAP is 30 years for all borrowers.
- Monthly payments are calculated using a sliding scale from 1% to 10% of your total income, based on how much you make. The minimum payment under RAP is $10/month.
- Additionally, if your payment doesn’t reduce the principal by at least $50, the government chips in to ensure $50 of principal is paid down each month.
- Once on RAP, you can’t switch to another income-driven repayment plan.
What is the Income Based Repayment (IBR) plan?
- The Income Based Repayment (IBR) plan is different depending on when you took out your first federal student loan.
- If you took out your first loan prior to July 1st, 2014, you will qualify for the Old IBR plan. If you took out your first loan on July 1st, 2014 or later, and prior to July 1st, 2026, then you will qualify for New IBR.
- The New IBR plan functions very similarly to PAYE. The payment is calculated at 10% of your discretionary income, this differs based on the state you live in and your family size, and forgiveness can be achieved after 20 years of payments.
- The Old IBR plan calculates your payment at 15% of your discretionary income, and forgiveness can be achieved after 25 years of payments.
What is happening with SAVE?
- If you’re already enrolled in the SAVE plan, you can stay on the plan until July 1st, 2028, or until there is a decision with the court injunction that is blocking most features of the plan right now.
- Interest will start to accrue each month starting on August 1st, 2025. You’re no longer getting interest cancellation.
- While interest is accruing, payments will remain paused due to the court injunction
What is happening with PAYE?
- Like SAVE, PAYE is going away, but you can stay on the plan until July 1st, 2028.
- If you were planning on staying on PAYE for forgiveness, you do have the option of switching to either New or Old IBR by July 1st, 2026.
Regardless of what plan you’re currently enrolled in, now is a good time to review your situation. Log in to your servicer (e.g., MOHELA, Nelnet, Aidvantage) or StudentAid.gov and check:
- Are you currently on SAVE, PAYE, IBR, ICR, or another IDR plan?
- What is your current monthly payment?
- When is your next income recertification date?
Many borrowers haven’t had to recertify their income since 2019. There is a decent chance that your income has gone up over the past 6 years, and if you need to recertify, your current plan may not make the most sense. I would urge borrowers to consider their cash flow needs, and potentially look into different IDR options, as well as private refinance options, or even an extended fixed plan.
For those of you lamenting the fact that you have to start making payments again, I get it. Going from nothing to thousands of dollars a month can be a gut punch. If there is any silver lining to this, try to remember you already won the lottery. The interest and payment savings over the last 6 years has amounted to hundreds of thousands of dollars for many dentists. Sadly the piper has come calling, but you can still make smart, strategic decisions for your loans going forward.
If you still feel overwhelmed, we’re here to help. Reach out to your advisor, or schedule a free student loan consultation with us and we’ll figure this out together!
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