Income-driven repayment for federal student loans: From ICR to RAP

Introduction

Income-driven repayment (IDR) plans allow student loan borrowers to make payments based on their income rather than a constant payment over a fixed term as for a car loan or mortgage. IDR serves two core purposes: matching the path of loan payments to the path of earnings over a borrower’s career and providing insurance against the risk that wages turn out to be lower than expected. A large and growing share of federal student loan borrowers and balances are now enrolled in some form of IDR—a dramatic expansion from IDR’s modest beginnings in 1993. As of December 2025, approximately $770 billion in outstanding federal student loan balances and 12.9 million borrowers were enrolled in IDR plans. The growth in the volume of loans in IDR reflects broad expansion of federal lending—including the addition of Graduate PLUS loans in 2006—and expansions in eligibility and generosity of IDR programs. As IDR plans became increasingly generous to borrowers, the program began to function as a back-door subsidy for higher education—converting what are formally loans into effective grants for many borrowers—at a cost to taxpayers that has repeatedly exceeded expectations.

What began as a single IDR option in 1993 proliferated into a confusing array of plans with different eligibility rules, payment formulas, and forgiveness timelines. The Biden-era SAVE plan—which was both struck down by the courts and slated to be phased out under recent legislation—is the latest in a succession of IDR options (ICR in 1994, “Old” IBR in 2009, “New” IBR in 2010, PAYE in 2012, REPAYE in 2015, and SAVE in 2023). This complexity, compounded by ultimately successful litigation against the Biden-era SAVE plan, has made the system confusing to borrowers and difficult to administer—difficulties that extend to the Public Service Loan Forgiveness program as well. In response to the litigation, the Biden administration placed millions of borrowers into interest-free forbearance for more than a year, at significant cost to taxpayers; the Trump administration resumed charging interest in August 2025, citing compliance with the injunction. (See our earlier report on the SAVE litigation.)

The One Big Beautiful Bill Act (OBBBA), enacted in July 2025, made important changes to the student loan program, reducing how much graduate and professional students and parents can borrow and overhauling how borrowers repay their loans. These changes have the potential to simplify the repayment system (for a comprehensive overview, see here). After the transition, multiple repayment options will be replaced with just two: a new tiered standard plan (with repayment terms ranging from 10 years for balances under $25,000 to 25 years for balances of $100,000 or more) and a single new income-driven repayment plan—the Repayment Assistance Plan (RAP). Older plans will be phased out over time. The RAP opened for enrollment on July 1, 2026. Whether these changes will deliver a simpler, better-functioning system remains to be seen; the transition itself is complex, and much work will be needed to unwind the SAVE forbearance and move borrowers out of older plans—work that will fall to the Federal Student Aid office (FSA) where the number of employees is down 40% and whose role may be transferred to the Treasury Department.

This report covers the purpose and history of IDR plans in the United States, from ICR in 1993 through the RAP and including plans that are now being phased out. We explain what goals IDR is meant to serve and how the plans work and differ from one another.

A note on terminology: In the United States, income-driven repayment (IDR) is the catch-all term covering all repayment plans where payments depend on income. Some court documents use “ICR” to refer to the three plans based on the 1993 law: ICR, PAYE, and REPAYE/SAVE. This report uses “IDR” to refer to the class of income-based plans and “ICR” only for the specific ICR plan.

What is the purpose of IDR plans?

Potential borrowers may face two challenges under standard loan repayment terms which can limit their willingness to pursue post-secondary education. First, borrowers cannot buy insurance to protect them against disappointing earnings—a graduate who enters a weak labor market, or whose field pays less than expected, still faces the same fixed monthly payment. Second, fixed payment schedules do not align well with how earnings typically grow over a career, so borrowers must repay a large share of their loans early on, when their incomes are lowest. When transitory periods of low income cause defaults, lenders—including the federal government—are worse off than if payments could be spread over a longer horizon. IDR plans can address both problems. However, the same features that make IDR valuable can produce unintended consequences by encouraging people to borrow more than they can expect to repay and discouraging employment and earnings.

IDR gives borrowers more time to repay

IDR aligns repayment with the trajectory of earnings. Once borrowers enter repayment after completing their education, they make monthly payments for a pre-specified amount of time on the standard repayment plan. Prior to OBBBA, the standard plan was 10 years with other options available for extended and graduated repayment; after OBBBA is implemented, the standard plan is “tiered”: the repayment horizon depends on the initial balance. This standard payment structure does not always line up well with the financial returns to the post-secondary investment. Wages tend to rise over a worker’s career, especially for those with bachelor’s or graduate degrees, but under the 10-year repayment plan, borrowers need to pay a large share of their loans back early in their career when earnings are lower.¹ Borrowers may face periods of unemployment or see their wages fluctuate from year to year; in IDR, payments scale up and down automatically with income.  

Extending the duration of payments to a longer term (15, 20, or 25 years) or structuring payments in ways that increase over time can partly address this issue. Indeed, “graduated” and “extended” payment plans have been available for years; the OBBBA legislation introduced a new tiered standard plan, which has a longer repayment horizon for larger loan balances. IDR plans can improve on these approaches by creating a repayment profile that is customized to match a borrower’s path of loan payments to their path of earnings.

Medical school graduates are a particularly stark example. They may accumulate student loan balances of $200,000 or more and often enter repayment while in residency, where salaries average around $70,000.² Physician incomes in mid-career and beyond are much higher by comparison.

IDR provides insurance against poor earnings outcomes

Investments in higher education are risky. Some students make educational investments that were expected to pay off but do not—because their program did not deliver the promised returns or they have bad luck finding a good job after graduation. IDR provides some insurance in the event of these bad outcomes because borrowers pay less if their income is low and can have part of their balance forgiven if their income is consistently low relative to what they borrowed. This insurance function is a central rationale for IDR.

Insurance can have unintended side effects: when people are protected against the full cost of a bad outcome, they have less incentive to avoid it, making such outcomes more likely.³ IDR is no exception: because borrowers who earn less repay less, some may borrow more than they otherwise would, choose lower-paying fields, or select programs with weaker earnings prospects; institutions may raise tuition knowing some students will never fully repay. That does not mean there should be no insurance, however. Rather, policymakers need to weigh the benefits of IDR—smoothing payments over a career and protecting borrowers against bad luck—against these costs.

The idea of income-contingent repayment has a long history. Conservative economist Milton Friedman proposed it in 1955, arguing that since human capital cannot be collateralized the way physical assets can, repayment should be tied to outcomes rather than fixed in advance.⁴ James Tobin, writing from a very different political perspective, arrived at a similar idea with his 1969 proposal for a “National Youth Endowment.” That a conservative and a left-of-center economist converged on income-contingent repayment to finance higher education underscores the broad economic logic for IDR.

The role of subsidy in IDR

Aid programs like the Pell Grant provide direct subsidies from the government to students based on their financial circumstances. Although student loans have to be repaid so, in principle, can cost the government little or even make a profit, a modest government subsidy through IDR may be necessary to overcome what economists call ‘adverse selection’ to provide the insurance function described above. But when IDR is generous enough that many borrowers expect significant forgiveness regardless of their outcomes, it stops functioning as insurance and starts functioning as a back-door grant program—effectively converting loans into grants after the fact.

Compared to upfront subsidies like Pell, generous IDR is likely less effective at facilitating access to higher education for those growing up in lower-income families. Students must borrow to access the subsidy, and it is less transparent, since students don’t know in advance how much will be forgiven. IDR is not well-targeted to those with low lifetime incomes. Lower-income borrowers make smaller payments, but the largest forgiveness subsidies flow to high-balance borrowers—who disproportionately pursued graduate or professional degrees and tend to have higher lifetime earnings.⁵ Whether students or institutions capture the benefit of these subsidies is an empirical question with significant policy implications.

How do IDR plans work?

Although IDR plans differ on a range of important details, they share a common set of design parameters. Not all borrowers and loans are eligible to participate in all IDR plans. Eligibility depends on the type of loans, when they were originated, and whether the loans have ever been consolidated. OBBBA will significantly alter eligibility, and several plans will sunset starting in July 2026. One distinction is between Direct Loans and older Federal Family Education Loan (FFEL) or Perkins loans:⁶ only IBR allows FFEL borrowers to participate without first consolidating to a Direct Loan. Some plans (IBR and PAYE) also imposed a partial financial hardship (PFH) requirement, restricting enrollment to borrowers whose income-based payment would be less than the standard payment.⁷ OBBBA removed the PFH requirement for IBR.

Policymakers must choose several parameters when designing an IDR plan:

• How the payment is calculated: IDR plans must specify how the monthly payment is calculated based on the borrower’s income and family circumstances. Before RAP, all plans shared the same basic structure; RAP introduced a different approach.
  • Before RAP: Payments are calculated as a percentage of discretionary income—income above a threshold set as a percentage of the federal poverty level. The poverty-level threshold automatically adjusts for inflation over time and accounts for household size. Borrowers with income below the threshold owe a zero payment but typically receive credit toward forgiveness. Payment rates range from 5% to 20% depending on the plan and borrower circumstances. ICR, PAYE, and IBR cap payments at the payment on the standard plan (amortized over 10 years for PAYE and IBR; 12 for ICR); REPAYE and SAVE do not have this cap, so that payments scale with income without limit.
  • RAP: The formula uses a sliding scale applied directly to adjusted gross income (AGI) rather than a percentage of discretionary income above an income protection threshold. Payments are $10 per month for borrowers with less than $10,000 in AGI, 1% for borrowers with AGI between $10,000 and $20,000, and so on (the rate increases by 1 percentage point for each additional $10,000 in AGI); the maximum payment is 10% for borrowers with AGI above $100,000. The brackets are not automatically adjusted for inflation, so the plan will become less advantageous to borrowers in real terms over time. The monthly payment is reduced by $50 for each dependent, subject to a $10 minimum. Like REPAYE and SAVE, RAP does not cap payments at the standard plan amount.
• Time to forgiveness: IDR plans set the number of qualifying payments a borrower needs to make before the remaining balance is forgiven. In the U.S., this ranges from 10 to 30 years.⁸
• Treatment of accrued-but-unpaid (“uncovered”) interest: Sometimes a borrower’s IDR payment is not enough to cover the interest on the loan, in which case, without a subsidy, the loan balance would grow. The extent to which uncovered interest is subsidized differs across programs, with important implications for how much different types of borrowers benefit from IDR.
• Treatment of married couples: IDR plans need to specify whether just the individual borrower’s income or the household income will be counted when calculating payments. Historically, plans had different rules about the treatment of a spouse’s income, though this is now standardized across plans.

The choice of these key parameters determines how much borrowers ultimately repay and how much the IDR plan costs taxpayers. Under either payment calculation structure, more generous parameters—lower payment obligations relative to income and shorter times to forgiveness—increase the cost of IDR to the government, sometimes substantially. Whether payments are capped at the payment in the standard plan also affects the cost to taxpayers. Capping payments reduces how much borrowers whose incomes rise steeply ultimately repay, instead of spreading payments over a career. Plans without a cap—REPAYE, SAVE, and RAP—are more consistent with IDR’s core purpose: if income rises high enough, more of the loan eventually gets paid back over a longer time frame.

How IDR plans are administered also has important effects on how well the plans work in practice. If borrowers do not know what plans they qualify for, cannot find and complete the correct IDR application, or cannot file paperwork necessary to maintain eligibility, IDR will not be effective in meeting its goals. The administration of IDR programs has long been plagued by problems. The SAVE Rule introduced several changes to simplify the application and recertification processes for all IDR plans,⁹ though the repayment landscape is still complex due to the fallout of litigation against SAVE and the OBBBA transition.

How do IDR plans interact with PSLF?

Many borrowers who enroll in IDR plans also participate in the Public Service Loan Forgiveness (PSLF) program, which reduces the time to loan forgiveness. PSLF is not itself an IDR plan, but it interacts with IDR. Borrowers who work full-time in the government or non-profit sectors can enroll in PSLF, and their loans will be forgiven after making payments for 10 years, instead of the 20 to 30 years for borrowers who qualify for IDR but not PSLF.

While the goals of IDR and PSLF are distinct, the interaction of the two programs has important implications for program costs and borrower behavior. IDR is primarily meant to give borrowers more time to pay and provide insurance against poor earnings outcomes, while PSLF is specifically meant to subsidize public sector and nonprofit employment by forgiving student loans only for workers in those sectors. Because PSLF requires IDR enrollment, the generosity of IDR impacts the generosity of PSLF.

How do IDR plans differ from each other?

The federal student loan system has operated six different IDR plans since 1993. Five predate the One Big Beautiful Bill Act (OBBBA), though the most recent pre-OBBBA plan, SAVE, was subject to litigation at the time the law was passed. That legislation introduced the new plan known as RAP. Several of the earlier plans will be phased out between July 2026 and July 2028, after which RAP will be the only IDR option available to new borrowers. IBR will continue to be available to borrowers who did not borrow or consolidate after July 2026.

• ICR (Income Contingent Repayment): Authorized by the 1993 Omnibus Reconciliation Act (OBRA93), ICR opened for enrollment in 1994. This program is available to all borrowers, including parents who borrowed Parent PLUS loans. ICR is less generous than later programs and enrollment is low relative to the other plans.
• IBR (Income Based Repayment): The 2007 College Cost Reduction and Access Act specified IBR as a second, more generous IDR option. The Health Care and Education Reconciliation Act (HCERA) of 2010 specified a more generous version of IBR for new borrowers after July 2014. For most borrowers, IBR is a better deal than ICR, but Parent PLUS loans are not eligible for IBR.
• PAYE (Pay As You Earn): Created in 2012 using the broad authority granted to the Secretary of Education under OBRA93, PAYE offered the more generous terms of “new” IBR to more borrowers, but participation was limited based on when borrowers took out their loans.
• REPAYE (Revised Pay as You Earn): Created in 2015 (based on the same OBRA93 provisions as for PAYE), REPAYE expanded access to IDR for more borrowers and made several other changes relative to PAYE.
• SAVE (Saving on a Valuable Education): The Biden administration used the same OBRA93 regulatory authority to overwrite REPAYE with SAVE in 2023, automatically transferring all REPAYE borrowers into the new plan. SAVE opened for enrollment in 2023. It became the target of litigation, with challengers in state attorney general offices arguing that the authority in the 1993 law did not stretch to a plan as generous as SAVE, ultimately arguing that OBRA93 did not authorize loan forgiveness. An appeals court agreed with that argument at a preliminary stage, and after Trump took office, the Department of Education chose not to defend the rule and agreed to settle with the challenger states. In March 2026, a court order implementing the settlement vacated all but one minor provision of the SAVE rule. Starting July 1, 2026, some borrowers enrolled in SAVE began to receive notices instructing them to transition to a new plan within 90 days or be enrolled in the new tiered standard plan. Servicers will reportedly be reaching out to borrowers in waves.   
• RAP (Repayment Assistance Plan): Introduced by the One Big Beautiful Bill Act (OBBBA), enacted in July 2025, RAP opened for enrollment on July 1, 2026. Implementing regulations (the RISE final rule) were finalized in May 2026.

Participation in IDR has increased substantially over the years. As of December 2025, about 42% of borrowers were enrolled in IDR plans, accounting for about 60% of loan balances.¹⁰ A decade ago, only 15.5% of borrowers, accounting for 28% of loans, were enrolled in IDR.

Eligible borrowers and loans

Protected income and payment rate

IDR plans must specify how the monthly payment is calculated. All plans except RAP share the same basic structure: payments are calculated as a percentage of discretionary income—income above a protected income threshold, which is a multiple of the federal poverty level. RAP uses a different approach: payments are calculated as a percentage of total AGI, with rates that increase with income.

We show how IDR payments are calculated for two example borrowers in Table 2. Panel A illustrates the calculation for pre-OBBBA plans and Panel B for RAP.

Table 3 shows the protected income threshold, payment rate, and monthly payment for the two example borrowers for all IDR plans.

RAP’s approach to calculating the monthly payment differs from prior plans in several important ways. First, because there is no protected income and the minimum monthly payment is set at $10, there is no income level at which a borrower has a zero payment. This means that the lowest-income borrowers will generally pay more under RAP than under earlier plans. Second, RAP accounts for the borrower’s family situation differently. Because the poverty threshold depends on household size, the income protection threshold increases automatically with household size. Under RAP, the monthly payment is reduced by $50 per dependent (subject to the $10 minimum); other household members, including a spouse, do not affect the calculation (except to include spousal income if married filing jointly) in determining the payment. Finally, RAP’s brackets are not indexed to inflation, so the plan will become less generous in real terms over time due to inflation.

Time to forgiveness

Table 4 shows how the required time in repayment before a borrower can have their remaining balance forgiven varies across IDR plans.

Among the earlier plans, the time to forgiveness ranges from 20 to 25 years. ICR sets the horizon at 25 years, as does the original IBR plan; PAYE and New IBR shorten it to 20 years. REPAYE introduced a distinction that SAVE retained: 20 years for borrowers with only undergraduate debt and 25 years for those with any graduate debt. RAP set the time to forgiveness to 30 years for all borrowers, regardless of loan type.

A provision of SAVE—absent from RAP—is a shortened forgiveness horizon for low-balance undergraduate borrowers: borrowers with original principal balances under $12,000 receive forgiveness in 10 years, with one additional year for each additional $1,000 of initial balance, up to 20 years. RAP has no equivalent provision; the 30-year timeline applies regardless of initial balance.

The shorter forgiveness horizon in SAVE was designed to address the needs of low-balance borrowers at relatively low cost to taxpayers.¹¹ Perhaps counterintuitively, student loan borrowers with the lowest balances tend to have the highest default rates, while those with large balances struggle less, on average. Borrowers with large balances typically completed a graduate or professional degree, investments that often pay off in the form of higher incomes which allow them to repay their loans.¹² Many small-balance borrowers, on the other hand, attended some college but did not complete a degree. Without a degree, their incomes are often low, making it difficult to pay back even the relatively small amounts they borrowed.

In practice, many borrowers who would have benefited from the shorter horizon for low-balance borrowers in SAVE will not spend the full 30 years in repayment in RAP for two reasons. Payments in RAP are higher than under SAVE for the low-income borrowers who would have benefited from this provision in SAVE, and the principal subsidy (discussed in the next section) ensures that balances fall each month even when payments are low. Both features mean that many borrowers will reduce their balance more quickly than they would have on SAVE and may therefore not have a remaining balance to be forgiven. We examine the case for including a shorter timeline for forgiveness, such as the provision in SAVE, in IDR plans here.

Treatment of uncovered accrued-but-unpaid interest

Sometimes a borrower’s payment under IDR is not enough to cover the interest on the loan in the same period. IDR plans differ in how they treat this “accrued-but-unpaid” or “uncovered” interest (see key terms below). A rule finalized in November 2022 changed the treatment of uncovered interest in some plans prior to the SAVE Rule, eliminating capitalization events that were not specifically required by legislation. Table 5 summarizes how each IDR plan treats uncovered interest before and after these changes. To the best of our knowledge, the November 2022 rule was not superseded by the SAVE litigation so remains operative for PAYE and ICR borrowers during the transition period, though the Department of Education (ED) has not issued formal guidance confirming this.

Key terms:

• Capitalized balance: The portion of the borrower’s loan balance that accrues interest (sometimes called the “loan principal,” though it can include interest if that interest has capitalized).
• Accrued-but-unpaid interest / uncovered interest: The excess of interest accrued in the current year above the payments made.
• Accumulated interest: Interest that has accrued but is not part of the capitalized balance on which interest will be calculated in the next year.
• Capitalization: When accumulated interest is added to the capitalized balance (principal) on which interest is calculated. A “capitalization event” is a condition that triggers capitalization.¹³

Without some interest subsidy, borrowers with uncovered interest will see their loan balance grow because payments are applied to interest first; the borrower is not paying down principal. This phenomenon is known as “negative amortization.” Negative amortization can be confusing and demoralizing for borrowers who see their balances increase even though they are making payments, and many see it as unfair. Successive IDR plans had more generous treatment of uncovered interest, reducing the extent of negative amortization. The SAVE plan eliminated it entirely.

In its treatment of uncovered interest, RAP goes even further, introducing a “matching principal payment”: each on-time monthly payment is guaranteed to reduce the principal balance by the amount of the payment up to $50; any interest that remains uncovered after that is waived. SAVE prevented balances from growing by waiving uncovered interest; RAP ensures that each payment reduces principal (either by the borrower or through the subsidy) and that no interest accumulates while in repayment if borrowers make on-time payments.

Treatment of married couples and household structure

IDR plans must address three questions for married borrowers. First, whose income counts when calculating the payment? Second, for each spouse, who counts as part of the household (for determining the relevant poverty line) or as a dependent (for calculating monthly payments in RAP)? Finally, how is the income-based payment allocated across spouses when both spouses have loans?

On the question of whose income counts, all plans other than REPAYE follow the same approach: for a borrower filing taxes separately, only that borrower’s income is counted; the couple’s combined income is used for borrowers filing jointly.¹⁴ In REPAYE, spousal income was counted even for borrowers filing separately, making the plan less attractive for some married borrowers. SAVE (which replaced REPAYE) aligned the treatment of married couples filing separately with the other plans, and RAP follows the same rule.  

Married borrowers’ decision about whether to file jointly or separately is a complex one. If they file jointly, the loan payment is calculated based on their combined income; and if both spouses have student loans, the payment is applied to each spouse’s loan account in proportion to their share of the combined loan balance. This approach is consistent across IDR plans.

Filing separately may reduce a married borrower’s IDR payment by excluding the spouse’s income from the calculation, but often the couple will pay more in taxes.

Whether the lower loan payment is worth the added tax cost depends importantly on whether the borrower expects to receive loan forgiveness. For a borrower on track for forgiveness, lower monthly payments represent permanent savings, since the unpaid remaining balance will eventually be forgiven; for such borrowers, savings on monthly payments is directly comparable to the additional taxes owed. This is not the case for borrowers who do not expect to receive forgiveness; for them, paying more taxes to reduce their payment is less attractive. In any case, it is a complex calculation that varies with income levels, loan balances, and individual circumstances.

IDR plans also have different approaches to accounting for household size and dependents. As discussed above, pre-RAP plans calculate an income protection threshold as a multiple of the poverty threshold. Since the poverty threshold is higher for larger households, this means that IDR payments are smaller for larger households. Which family members count for purposes of calculating the income protection threshold varies across plans and changed over time—another source of complexity and potential confusion for borrowers. RAP takes a different approach to adjusting for family structure: RAP calculates the payment as a percent of income and provides a flat $50 monthly reduction per dependent claimed on the borrower’s tax return. Under prior plans, both spouses filing separately could each count the same child in their separate family size calculations. Under RAP, each dependent can be claimed by only one spouse. A couple with one child, for instance, cannot each claim the $50 reduction; the reduction goes to whichever parent claims the child on their separate tax return.

IDR costs are difficult to predict and can be high

The cost to the government of student loans has been consistently underestimated due to changing economic circumstances, increased borrowing (especially through Grad PLUS), and larger-than-anticipated responses from borrowers and institutions.¹⁵ Forecasting the cost of IDR programs has proven especially difficult. When the first IDR program was adopted in the 1990s, it was expected to have minimal budget impacts, but costs have ballooned in recent decades. According to a 2022 Government Accountability Office (GAO) report, the Department of Education’s IDR cost estimates increased by approximately $70 billion since 2013 due to updated assumptions about borrowers’ repayment plan selection and another $68 billion due to changes in underlying income data.

SAVE, had it been fully implemented, would have substantially increased the cost of the student loan program, with 10-year cost estimates ranging from around $276 billion per the Congressional Budget Office (CBO) to $455 billion per Penn Wharton. The question became moot when Congress passed OBBBA (and SAVE was struck down by the courts).

CBO estimates that the OBBBA repayment reforms—replacing SAVE, ICR, and PAYE with RAP—will save approximately $271 billion over 10 years. However, most of that savings is due to the elimination of SAVE; under the scoring baseline that Congress chose for this legislation, CBO treated SAVE as “current law” even though it was enjoined by the courts and was not expected to survive. This choice inflated the estimated savings substantially relative to a baseline incorporating the courts’ rejection of SAVE. That is, the bulk of the $271 billion in savings compares RAP to a counterfactual world in which SAVE was fully implemented.

OBBBA also reduced borrowing limits for graduate and professional students, eliminating Grad PLUS loans for new borrowers and capping unsubsidized borrowing at $20,500 per year (up to $100,000 total) for graduate students and $50,000 per year (up to $200,000 total) for professional students. CBO estimates these caps save an additional $44 billion over 10 years, likely because many of the foregone loans would otherwise have been forgiven through PSLF or IDR.

In addition, OBBBA capped how much parents can borrow through the Parent PLUS program. Prior to OBBBA, Parent PLUS borrowers could qualify for ICR, the least generous IDR plan, but they will no longer be eligible for any IDR plan after July 2026. Parent PLUS has historically been one of the few federal student loan programs to generate net revenue for the government. OBBBA’s borrowing caps, however, will disproportionately constrain higher-income families, who are the program’s most reliable repayers. These changes may shift the composition of the Parent PLUS portfolio towards lower-income families who borrow less but default at higher rates. Whether the Parent PLUS limits reduce or increase the cost of the program overall depends importantly on how this shift in the borrower pool affects long-run repayment outcomes.

RAP is significantly less generous than SAVE so it will reduce costs of IDR relative to the SAVE baseline, although that may not be the relevant baseline considering the SAVE plan was ultimately ruled illegal. Whether and how much RAP will cost compared to the pre-SAVE status quo is more difficult to say. More broadly, when IDR is sufficiently generous that many borrowers expect to receive forgiveness, the program functions less as insurance against poor earnings outcomes and more as an untargeted—and potentially expensive—subsidy for post-secondary education. Predicting the cost of that subsidy is difficult: borrower and institutional responses to IDR generosity are hard to anticipate, and interactions with PSLF and loan limits make estimating costs even more complex.

Conclusion

After years of confusing expansion of IDR options, litigation, and other disruptions to the student loan repayment system, OBBBA and the end of the SAVE litigation have resolved the uncertainty for the medium-term. Once the transition is complete, the post-OBBBA repayment system will be significantly simpler for new borrowers: there will be just two repayment plans, RAP and the new tiered standard plan. However, significant uncertainty remains, and new loan limits for graduate borrowers will likely lead to increased private borrowing, introducing a new source of complexity. Millions of borrowers in SAVE forbearance still haven’t been given a clear picture of when or how they will move to another plan, and the transition to the new system will take up to two years. RAP opened for enrollment in July 2026, and ICR and PAYE will phase out by July 2028. Getting millions of people who have not made a payment in years¹⁶ onto a new repayment plan—and communicating clearly what they owe and when—will be a massive operational undertaking.

Managing that transition will fall to the Federal Student Aid office and student loan servicers, neither of which has a strong track record. Over the past two decades, a succession of administrations has struggled—and often failed—to effectively manage payment counts, IDR guidance, servicer oversight, and forgiveness tracking. Reports documented systematic undercounting of qualifying payments and widespread servicer steering of borrowers into forbearance rather than IDR plans for which they qualified. The current administration’s significant reductions in FSA staffing add to these concerns, as does its decision to transfer student loan administration from FSA to the Treasury Department. In March 2026, Treasury assumed responsibility for the roughly $180 billion in defaulted loans, with a stated intent to eventually take over the full portfolio. Treasury brings expertise in debt collection but has no experience with the complex administrative functions—income certification, forgiveness tracking, servicer oversight—that IDR requires. A well-managed transition is essential not only for borrowers’ well-being, but also for the credibility of the student loan system: borrowers who have witnessed years of disruption and uncertainty deserve clear information and reliable administration of the new rules.

The changes to repayment plans in OBBBA have the potential to address some serious problems with the prior system. The proliferation of IDR plans with different eligibility rules, payment formulas, and forgiveness timelines had created confusion for borrowers and administrative complexity for servicers; SAVE’s generosity raised concerns about high costs to taxpayers, incentives for institutions to increase tuition and borrowers to increase borrowing, and the conversion of what are formally loans into grants that were not well-targeted to the neediest students. RAP simplifies the landscape and imposes more fiscal discipline. RAP provides meaningful protection for borrowers with lower-than-expected earnings: payments scale with income, unpaid interest is waived, and the principal subsidy ensures balances fall with each on-time payment. But RAP also introduces new concerns. The $10 monthly minimum means no borrower has a zero payment, which may help keep borrowers connected to the repayment system, but may also pose a hardship for some, especially considering OBBBA limits the use of forbearance. Because the formula for calculating the monthly payment based on income is not indexed to inflation, the generosity of RAP will erode over time. And the 30-year forgiveness timeline—the longest in any U.S. IDR plan—extends the horizon considerably for borrowers to see remaining balances forgiven. If implementation is successful, OBBBA will reduce the complexity of the repayment system and address some of the longstanding problems that have plagued it, but this is unlikely to be the last word on IDR.