Trump admin student loan plan prompts dire warning

A leading student loan advocacy group is raising alarms over a new repayment plan from the Trump administration, warning it could leave millions of borrowers in financial distress. The Department of Education (ED), led by Education Secretary Linda McMahon, recently unveiled the Repayment Assistance Plan (RAP), a program created under the One Big, Beautiful Bill signed into law by President Donald Trump in July. The plan is designed to replace older income-driven repayment (IDR) options and will be implemented over the next several years.

Trump’s Repayment Assistance Plan

According to the ED, RAP will serve as a new repayment option alongside the standard plan, which bases payments solely on the loan size rather than the borrower’s income. All borrowers who consolidate their loans through the Federal Direct Loan Program will have to choose between the RAP and the standard plan. By 2028, three existing IDR programs — Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Saving on a Valuable Education (SAVE) — will be eliminated. Unlike current IDR plans, RAP uses a formula that increases a borrower’s monthly payment percentage for every additional $10,000 in income earned, up to $100,000. The plan also sets a minimum monthly payment requirement even for those with no income. Other IDR plans, such as IBR, PAYE and SAVE, exempt borrowers from payments if their earnings fall below certain thresholds.

Income protection

Another key change is that RAP bases payments on gross income, rather than discretionary income. Existing plans shield a portion of income through an “income protection” allowance, ensuring borrowers can afford their basic living expenses. “The plan departs radically from the core design tenets of all previous income-based repayment plans,” the Institute for College Access and Success (TICAS) wrote in a recent blog post. “One stark difference is that it removes the ‘income protection’ that all prior plans have, which is meant to ‘protect’ a certain amount of a borrower’s income so they can stay current on their loan payment while still having enough funds to cover their basic needs.”

Trump extends timeline

The new plan also lengthens the timeline for loan forgiveness. Whereas ICR, PAYE and SAVE offered forgiveness after 20 or 25 years of repayment, RAP requires a 30-year repayment period before borrowers can qualify. Additionally, RAP does not factor in household size the way other IDR plans do. Instead, it provides only a $50 monthly payment reduction per dependent child. Borrower advocates warn these changes could have dire consequences. TICAS cautioned that requiring payments from borrowers, even those below the poverty line, will inevitably increase defaults.

Inflation

With inflation and the rising cost of living already straining many families, advocates fear RAP could worsen financial insecurity. “As the cost-of-living increases, RAP will likely push more borrowers than ever into the nightmarish world of loan default,” TICAS said. “All told, the RAP proposal is not much of a safety net. When it’s the only thing standing between borrowers and loan default, we can expect many more borrowers to enter the draconian student loan collections system, in which many will be trapped.” For now, RAP remains an option, but with older programs slated for elimination, critics warn borrowers may be left with little choice but to enter a system they say is stacked against them.

The post Trump admin student loan plan prompts dire warning appeared first on Knewz.