Student Loans Are Changing (Again.) Here’s What You Need to Know.
Heads up: big changes are coming to the federal student loan system.
Starting July 1st, there’s a new income-based option called the Repayment Assistance Plan (RAP). The goal is to simplify the menu of repayment plans, but for most borrowers, especially ones with moderate or lower income, this plan will not be as advantageous as the previous SAVE plan or other IDR plans. If you are currently in an IDR plan (especially SAVE), you’ll need to research the best option for you and act quickly.
What’s Changing Under RAP
- • Payment is based off of Adjusted Gross Income: RAP will use AGI (instead of discretionary income), which can result in higher payments
- • Longer loan forgiveness timeframe: Remaining balances can be forgiven after 30 years, which is 5-10 years longer than other plans
- • Fewer Income Driven Repayment (IDR) choices over time: Several IDR plans will be phased out over the next few years as RAP becomes the main choice
- • Lower limits for Parent Plus Loans: The annual and total limits for Parent Plus Loans are decreasing
The names and availability of some federal plans are changing, but the core decision points below are still the foundation.
The Basics
There’s nothing like the feeling of graduating college. You’ve got a degree, a diploma, and… tens of thousands of dollars of debt. Unfortunately, student loan repayment isn’t a Gen-Ed, so let’s go through some tips that can help get your student debt under control.
The first thing to understand is the type of loan you have:
- • Federal Loans: Check them at StudentAid.gov.
- • Private Loans: Log in to your loan servicer’s website (you’ll find it on your statements).
This distinction matters because federal loans come with built-in protections and program pathways, and while the list of specific repayment plans is changing, the core decision points stay the same.
Repayment Options: What Actually Matters
Standard Repayment
The simplest plan. It often results in the least total interest, but payments can be steep if your cash flow is tight.
Income-Driven Repayment (IDR)
If you need flexibility, an IDR plan may help. Your payment adjusts based on your income, giving you breathing room when needed.
The tradeoff? A longer repayment timeline and potentially more total interest.
Public Service Loan Forgiveness (PSLF)
If you work for a qualifying employer, PSLF can erase your remaining balance after you complete the right number of qualifying payments.
But it has hurdles—wrong loan type, wrong repayment plan, missed payments, and missing employer certification can all derail progress. It’s a good idea to check on your PSLF status every six months.
Consolidation vs. Refinancing
Now that you have idea about the types of loans you have and the repayment options available, we can consider consolidation and refinancing. Federal loans can be consolidated into one loan, and this can help you qualify for different repayment options (like IDR). What consolidating doesn’t do is lower your actual interest rate, since it just combines them with a weighted average. Refinancing a federal loan means replacing it with a private loan. This can be a big trade-off. You may get a lower rate in the private market, but you lose out on federal protections and repayment options like IDR and PSLF. If you have private loans, refinancing is usually a simple decision – just lower your rate and lower your cost. What you choose to do depends on your overall strategy. Are you trying to lower your rate, simplify your structure, or preserve flexibility? Once you know what you’d like to accomplish, the reasoning behind the options becomes clearer.
Should You Pay Off Loans Faster or Invest?
Speaking of strategy, one of the biggest and most consistent questions is going to be the balance between paying off your loans and debts vs investing. There’s no silver-bullet answer here, but there are a few things to consider. First, if you’re getting an employer match through your retirement plan, try to max that out, as it’s immediate return on your money. After that, the decision often comes down to how high the interest rate is, how stable your cash flow feels, and how close you are to major life goals. An important thing to remember is that compound interest goes both ways. Just as your loan amount increases each year, the balance of your investments will do the same, so it’s important to have a blended plan. Make sure you have steady retirement contributions and also focused payments on the highest-rate loans.
Need Help?
If you’d like, we can help you turn this into a simple, personalized budget. A quick conversation is usually enough to confirm what you have, what options actually apply, and what a realistic next step looks like. If budgeting for student loans is on your mind this year, give us a call—this is exactly the kind of thing we help participants sort out.
If you need additional assistance navigating the tumultuous world of student loans, we would suggest that you check out Thrive Student Loan Advisors, or another relevant expert. Thrive Student Loan Advisors has monthly webinars you can join that are exclusively about student loans, they offer a free one-time meeting with a student loan advisor, and can even help you manage your student loans ongoing. https://sladvisors.thrivematching.com/