Student Loan RAP Plan: Late payments can result in loss of key benefits

The U.S. Department of Education’s new Repayment Assistance Plan (RAP) offers certain benefits to student loan borrowers, but only if their bills are paid on time.

“Under the RAP repayment plan, even a single day’s delay in payment will result in harm,” said higher education expert Mark Kantrowitz. “You’re missing out on valuable perks that could save you money.”

RAP is the government’s latest income-driven repayment plan, meaning your claim is capped at a percentage of your income. Under the plan, which became available on July 1, monthly payments typically range from 1% to 10% of a borrower’s income. The more you earn, the more payments you will need to make. RAP culminates in loan forgiveness after 30 years.

Education Department official Nicholas Kent wrote on X earlier this month that about 46,000 student loan borrowers have already submitted applications for admission to RAP.

Here’s what you need to know about the importance of timely payments in RAP.

Rich Williams, a former deputy assistant secretary of education, said student loan borrowers often find their balances quickly grow beyond the amount they originally borrowed due to interest accrual. RAP was designed to protect borrowers from that problem, Williams said.

“This protection comes from two benefits, both of which are related to paying on time,” he said.

The first benefit is interest forgiveness, which erases all unpaid interest that has accrued on your balance for the month. Second: If your on-time payments reduce your principal balance by less than $50, the department may match up to $50 in one match, “making sure your principal is reduced every month, regardless of the amount you pay,” said Williams, who is also chief customer officer at Summer, a company that provides guidance to loan holders.

If you miss the deadline, you will lose both of these benefits.

Late payments do not count towards loan forgiveness under the terms of RAP or Public Service Loan Forgiveness. PSLF allows public employees to have their debt canceled after 120 payments.

RAP is unique in how quickly these results are reflected, Kantrowitz added.

“Other plans have a tolerance limit before a payment is considered late,” he said.

If your payment is late, you will still receive the $50 discount per dependent on your plan for that month. Under the terms of RAP, your monthly bill will be reduced for each dependent you have on your federal tax return. Dependents often include children, but may also include parents and other dependents.

The best way to avoid missing deadlines is to sign up for automatic payments, Williams says. The Department of Education has added incentives for borrowers to do so. The plan is to reduce interest rates by 1 percentage point until June 30, 2028. However, to receive that benefit, borrowers must enroll in their student loan servicer’s AutoPay by the end of September.

There is one caveat. Some loan holders have found that the wrong amount has been debited from their account using autopay. So, keep an eye on your monthly charges.

If your income decreases, you should alert your loan servicer “so that your payments are adjusted to what you can afford, rather than risk missing a payment,” Williams says.

Williams said that transferring more than a month’s worth of payments will cause your account to switch to “prepaid” status, which could disqualify you from both RAP interest forgiveness and matching principal payments.

“So paying exactly what you owe on time is usually the wisest thing to do,” he says.