WASHINGTON, D.C. — Federal student loan borrowers taking out new loans after July 1 will be limited to two primary repayment options under changes enacted through the Working Families Tax Cuts Act, a restructuring that the Trump administration says is intended to simplify a system that currently offers dozens of repayment and discharge pathways.
The overhaul replaces much of the existing income-driven repayment framework with a new Repayment Assistance Plan, known as RAP, and a Tiered Standard repayment plan. The changes affect new federal student loan borrowers immediately and will eventually require many existing borrowers to transition from phased-out repayment programs.
The move comes as federal officials seek to streamline a student loan system that the administration says includes more than 40 repayment and discharge options. According to the Department of Education, roughly 70% of borrowers report feeling overwhelmed when navigating repayment choices.
The new Repayment Assistance Plan ties monthly payments to income, with borrowers paying between 1% and 10% of their earnings depending on income level. Borrowers also receive a $50 monthly payment reduction for each dependent.
Unlike several previous income-driven repayment plans, RAP limits loan forgiveness. Remaining balances may be discharged only after 360 qualifying monthly payments, equivalent to 30 years of repayment.
A central feature of the program is an interest-waiver provision designed to prevent balances from growing when borrowers make required payments. Under the plan, unpaid monthly interest is waived for borrowers who remain current on their loans.
The Department also will provide a matching principal payment of up to $50 per month when a borrower’s required payment does not reduce principal by at least that amount.
Federal officials said the changes are intended to address a longstanding issue in which borrowers remained current on their loans but saw balances grow because payments failed to cover accumulating interest.
Department data cited in the announcement indicate that three out of four borrowers enrolled in previous income-driven repayment plans owed more than their original loan amounts six years after entering repayment.
The second option, the Tiered Standard repayment plan, establishes repayment periods of 10, 15, 20, or 25 years based on the size of a borrower’s debt.
The structure replaces the previous standard repayment system, which generally placed borrowers into a 10-year repayment schedule regardless of loan balance.
According to the Department, extending repayment periods for larger balances could significantly reduce monthly payments. A borrower with an initial balance of $30,000, for example, would see a minimum payment decline from $341 under the traditional 10-year plan to $262 under a 15-year repayment schedule.
Borrowers with loans issued before July 1, 2026, who are enrolled in repayment programs slated for phaseout will have until July 1, 2028, to choose between RAP, the Tiered Standard plan, or the existing Income-Based Repayment program.
Applications for the new plans will be available through StudentAid.gov beginning July 1. The Department said borrowers who authorize access to Internal Revenue Service tax data will be able to complete the application process without separately submitting income documentation.
The changes represent one of the most significant restructurings of the federal student loan repayment system in recent years, affecting future borrowers immediately while setting the stage for broader changes across the federal student loan portfolio.
More information is available at StudentAid.gov.
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