Revamping the Republicans’ RAP Repayment Plan
Among the sweeping changes Republicans are pursuing via budget reconciliation are major reforms to student loans, and especially to the repayment plans the federal government offers to student borrowers. Both the House and Senate have coalesced around a loan repayment system with just two plans going forward: a standard mortgage-style repayment plan with fixed payments over a specified term, and a plan linking payments to borrowers’ incomes, called the “Repayment Assistance Plan” (RAP).
Broadly, the Republican higher education reconciliation proposals each would cut hundreds of billions of dollars in spending, with the lion’s share coming from changes to student loan repayment plans that reduce loan forgiveness to borrowers. Ending the Biden Administration’s SAVE income-driven repayment (IDR) plan accounts for much of the savings, but RAP would go further, generating savings even relative to long-standing IDR plans.
As we detail, the design of RAP is innovative relative to prior IDR plans, offering more flexibility to target loan payment relief to low-income borrowers, while controlling the overall costs of the plan. It is unfortunate, then, that RAP would be more punitive to low-income borrowers than earlier IDR plans, undermining the core purpose of income-driven repayment: to act as a safety net for borrowers with lower-than-expected returns on their educational investment. Notably, the plan would eliminate $0 payments for the lowest-income borrowers, and increase the time until remaining balances are forgiven to 30 years, up from 20 years in several existing plans. Additionally, key parameters are not adjusted for inflation, making the plan less and less generous over time.
With the modest changes listed below (described in more detail in the brief), RAP could become a much stronger safety net, while still controlling costs by requiring higher payments from higher-income borrowers. Modeling each of these changes for an undergraduate borrower, we found the biggest impact would be for the lowest-income borrowers—those making $20,000 or less.
Adjust key parameters of the plan for inflation.
Allowing $0 payments for the lowest-income borrowers.
Making the income tiers more progressive, so that the lowest-income borrowers pay less.
Granting forgiveness at 20 or 25 years, instead of 30 years.
Providing earlier forgiveness for low-balance borrowers.
Raising the monthly payment reduction for each dependent.
This brief details the drawbacks of RAP , and illustrates how the RAP framework could be tweaked to ensure the plan serves as a safety net for truly struggling borrowers, even while ensuring full loan repayment for most borrowers.
