IBR vs RAP vs New Standard Plan: How to Choose the Right Student Loan Repayment Option

• The Modified IBR provides flexibility by adjusting annually with your income, making it ideal for those expecting variable income levels.

• The Repayment Assistance Plan may provide lower payments initially, but expect them to go up as you make more money.

• The New Standard Plan offers payment predictability and is best for borrowers who can afford higher payments.

Congress’s latest legislation is dramatically reshaping student loan repayment, ending popular plans like SAVE, PAYE, and ICR.

Now, borrowers must navigate critical choices between Modified Income-Based Repayment (IBR), the new Repayment Assistance Plan (RAP), and the revised Standard Plan.

RAP might initially appear appealing due to lower starting payments, but its lack of annual cost-of-living adjustments can lead to significantly higher payments over time.

In contrast, Modified IBR adjusts payments annually, potentially offering more stable and affordable long-term repayments.

The New Standard Plan provides predictability but at potentially steep monthly costs.

This breakdown shows how each repayment option works, so you can choose the plan that fits your goals and budget.

The Modified IBR plan calculates your monthly payment based on your discretionary income, which is your income minus essential living expenses. This ensures affordability, especially for borrowers whose income fluctuates.

Payments adjust annually to account for cost-of-living changes, helping you manage repayment.

Your eligibility for Modified IBR depends on when you first borrowed:

• Old IBR: If you first borrowed federal student loans before July 1, 2014, you’re eligible for Old IBR (15% discretionary income, forgiveness after 25 years).

• New IBR: If you first borrowed federal loans on or after July 1, 2014, you’re eligible for New IBR (10% discretionary income, forgiveness after 20 years).

Consolidating older loans after July 1, 2014, does not grant New IBR eligibility; eligibility is strictly based on your original borrowing date.

The Modified IBR plan calculates your monthly payment based on your discretionary income, which is your income minus essential living expenses. This ensures affordability, especially for borrowers whose income fluctuates. Payments adjust annually to account for cost-of-living changes, helping you manage repayment.

Your eligibility for Modified IBR depends on when you first borrowed:

• Old IBR: If you first borrowed federal student loans before July 1, 2014, you’re eligible for Old IBR (15% discretionary income, forgiveness after 25 years).

• New IBR: If you first borrowed federal loans on or after July 1, 2014, you’re eligible for New IBR (10% discretionary income, forgiveness after 20 years).

Consolidating older loans after July 1, 2014, does not grant New IBR eligibility; eligibility is strictly based on your original borrowing date.

The Repayment Assistance Plan sets your monthly payments based on your Adjusted Gross Income, initially resulting in lower payments compared to other plans. It includes benefits like monthly interest waivers and principal matching, which can be appealing at first.

However, RAP uses a narrow definition of dependents, allowing only a flat $50 monthly deduction per dependent child claimed on your tax return. This contrasts sharply with IBR, where your payments adjust based on your broader “family size,” including anyone you financially support, whether or not they’re formally claimed on taxes.

RAP’s lower initial payments may appear advantageous, but its lack of annual adjustments for cost-of-living and wage growth can significantly increase monthly payments as your income rises. It also has an extended forgiveness timeline of 25–30 years, which could mean bill increases over a longer period.

Additionally, enrolling in RAP is permanent. There’s currently no mechanism to switch to IBR later.

The New Standard Plan offers fixed monthly payments based on your total loan amount, with repayment terms ranging from 10 to 25 years. While predictable, these payments can be significantly higher than income-driven options, making the plan less suitable for borrowers with tight budgets or fluctuating income. It’s best suited for those who can manage higher, consistent monthly payments.

Here are examples of how the differences in these plans could affect your payments.

Recent Graduate with Moderate Income

• Loan Balance: $50,000

• Annual Income: $45,000 (expected 3% annual growth)

Monthly Payments:

• Modified IBR: Starts at approximately $250/month, adjusting annually with income.

• RAP: Starts around $150/month initially, but without adjustments, payments could exceed $350/month within a few years. (For example, a $45,000 income rising at 3% annually reaches nearly $60,000 in ten years, sharply increasing RAP payments.)

• New Standard Plan: Around $400/month fixed for 20 years.

Modified IBR offers stable, predictable payments suitable for moderate-income borrowers. While RAP seems attractive initially, payments will likely outpace income growth, making Modified IBR more predictable and sustainable.

Public Service Worker Pursuing PSLF

• Loan Balance: $75,000

• Annual Income: $60,000

Monthly Payments:

• Modified IBR: Starts at about $350/month, remaining stable relative to income growth.

• RAP: Starts lower at around $250/month but can rise sharply without COLA adjustments (potentially exceeding $400/month within several years).

• New Standard Plan: Fixed around $600/month over 20 years.

Modified IBR aligns best with public service careers, offering affordability and PSLF eligibility. The stable, predictable payments and clear PSLF eligibility make Modified IBR ideal for public service workers.

Married Borrower with Non-Borrower Spouse

• Borrower Loan Balance: $100,000

• Borrower Annual Income: $65,000

• Spouse Annual Income: $90,000

Monthly Payments (filing separately):

• Modified IBR: Payments based solely on borrower’s income around $400/month initially.

• RAP: Starts lower (~$300/month) but likely exceeds IBR within a few years due to rising income without adjustments (potentially surpassing $500/month).

• New Standard Plan: Payments around $800/month fixed for 25 years.

Modified IBR provides optimal flexibility for married borrowers filing separately. Modified IBR offers affordability and flexibility, particularly advantageous when filing separately from a higher-earning spouse.

Married Couple with Dual Student Loans

• Combined Loan Balances: $140,000

• Combined Annual Income: $120,000

Monthly Payments:

• Modified IBR: Each spouse’s payments calculated individually (~$500/month each initially).

• RAP: Each payment (~$500/month initially) likely rises significantly over time (potentially exceeding $700/month each).

• New Standard Plan: Each spouse pays roughly $700/month fixed.

Modified IBR is best for dual-borrower couples seeking manageable, individualized payments. The individual adjustment and annual recalculation make Modified IBR better suited for dual-income borrowers with significant debt.

High-Earner Expecting Rapid Income Growth

• Loan Balance: $150,000

• Annual Income: $100,000 (expected rapid growth)

Monthly Payments:

• Modified IBR: Starts around $650/month, rising predictably with income.

• RAP: Starts lower (~$500/month), but payments accelerate substantially due to lack of COLA, quickly exceeding IBR (potentially surpassing $1,000/month).

• New Standard Plan: Fixed at approximately $1,200/month for 25 years.

Modified IBR offers flexibility; the Standard Plan suits those capable of high, fixed repayments for faster repayment.