One Big Beautiful Bill Act: Student Loans, RAP, and Forgiveness

The One Big Beautiful Bill Act, signed into law on July 4, 2025, brings the most significant student loan changes in a generation. It replaces every income-driven repayment plan with a single new option called the Repayment Assistance Plan starting July 1, 2026, caps how much parents can borrow through Parent PLUS, eliminates Graduate PLUS loans for new borrowers, and stops unpaid interest from being added to your balance when your monthly payment doesn’t cover it.¹

The Repayment Assistance Plan Replaces Every IDR Plan

On July 1, 2026, a single income-based option called the Repayment Assistance Plan (RAP) becomes the only income-driven repayment plan the Department of Education offers. The law repeals the authority for income-contingent repayment entirely, which phases out SAVE, ICR, PAYE, and the existing IBR structure.² Standard and extended repayment plans remain available, but anyone who wants payments tied to income will be on RAP.

RAP works differently from the plans it replaces. Older IDR plans subtracted a poverty-line threshold from your income before calculating a payment, which often left lower-income borrowers owing nothing. RAP bases payments on your full adjusted gross income (AGI) using a sliding-scale percentage, with a floor of $10 per month.³

How RAP Payments Are Calculated

Your monthly payment depends on the income bracket your AGI falls into. The percentage starts at 1% and climbs by one point for each $10,000 of additional income, topping out at 10% for AGI above $100,000:³

AGI of $10,000 or less: $10 per month ($120 per year)
$10,001 to $20,000: 1% of AGI divided by 12
$20,001 to $30,000: 2% of AGI divided by 12
$30,001 to $40,000: 3% of AGI divided by 12
$40,001 to $50,000: 4% of AGI divided by 12
$50,001 to $60,000: 5% of AGI divided by 12
$60,001 to $70,000: 6% of AGI divided by 12
$70,001 to $80,000: 7% of AGI divided by 12
$80,001 to $90,000: 8% of AGI divided by 12
$90,001 to $100,000: 9% of AGI divided by 12
$100,001 or more: 10% of AGI divided by 12

Each dependent you claim on your tax return reduces the monthly payment by $50, though the payment never drops below $10.³

The Department of Education is authorized to receive your AGI directly from the IRS, so your payment adjusts automatically each year based on your most recent tax return.² The annual recertification paperwork that pushed borrowers off their old plans is gone.

Unpaid Interest No Longer Grows Your Balance

For borrowers whose payments haven’t kept up with monthly interest, this is the most consequential change in the law. Under RAP, if your monthly payment doesn’t cover the interest that accrued that month, the unpaid interest is not charged to you. The statute states that the accrued and unpaid interest “shall not be charged to the borrower.”² That ends the pattern of borrowers watching their balances climb higher than what they originally borrowed after years of on-time payments.

Interest still accrues at your loan’s assigned rate. What changes is that every dollar you pay now reduces your actual balance rather than covering a growing pile of capitalized interest.

RAP also adds a matching principal payment for borrowers with very small monthly payments. If your total principal payment for the month is less than $50, the Department of Education contributes an additional principal reduction equal to the lesser of $50 or your total monthly payment.³ That match helps ensure even the lowest-income borrowers see their balances decline.

Forgiveness After 30 Years

Any remaining balance under RAP is forgiven after 360 qualifying monthly payments, or 30 years.³ That’s longer than the 20- or 25-year timelines under the older IDR plans.⁴ The tradeoff is a simpler payment calculation, protection from unpaid interest, and no recertification risk, in exchange for a longer path to forgiveness.

Public Service Loan Forgiveness is preserved, and payments made under RAP count toward the 120 qualifying payments PSLF requires. This provision took effect immediately when the law was signed, so borrowers who enter RAP at launch can accumulate PSLF credit right away if they meet the employment requirements.⁵ For public-sector and nonprofit workers, the 10-year PSLF path stays open under the new structure.

What Existing IDR Borrowers Should Do

If you’re already on an income-driven plan, nothing changes overnight. Borrowers on ICR, PAYE, or SAVE can remain on those plans, or switch between them, until July 1, 2028. After that date, anyone still on one of the discontinued plans who hasn’t chosen another option is moved into RAP automatically. Borrowers on the current IBR plan or standard repayment are not forced to switch, but they can opt into RAP if they want to.

This two-year window matters most for borrowers close to forgiveness. If you’ve made 18 years of qualifying payments toward a 20-year forgiveness timeline under PAYE, staying on that plan through the transition preserves that progress; moving to RAP restarts the clock under a 30-year timeline. Check your qualifying payment count on StudentAid.gov before changing anything.

New Borrowing Caps

Undergraduate Direct Loan limits stay the same. Dependent undergraduates can still borrow between $5,500 and $7,500 per year, up to an aggregate of $31,000. Independent undergraduates keep their higher limits, up to $12,500 per year and $57,500 total.⁶

Parent PLUS

Parent PLUS borrowing takes the biggest hit. Previously, parents could borrow up to the full cost of attendance for each child, with no aggregate cap. Starting with the 2026-27 award year, a new aggregate limit of $65,000 applies per dependent student. That cap is per student, not per parent, so if two parents borrow for the same child, their combined borrowing cannot exceed $65,000.⁷ Once a parent reaches that cap for a particular student, no additional PLUS borrowing is available for that student, even if prior loans have been partially repaid or discharged.

Graduate and Professional Students

Graduate PLUS loans are eliminated for new borrowers as of July 1, 2026. Graduate students already enrolled and borrowing before that date may qualify for a limited exception period. New graduate borrowers rely on Direct Unsubsidized Loans, subject to new aggregate caps of $100,000 for most programs and $200,000 for certain health profession programs.⁷ That’s a substantial reduction for students in high-cost programs like law and medicine who previously could borrow up to full cost of attendance through PLUS.

Which Loans Are Affected

The new rules apply to federal Direct Loans, including Subsidized, Unsubsidized, and PLUS. Older FFEL Program debt is also covered, but FFEL borrowers generally need to consolidate into a Direct Consolidation Loan to access RAP and its benefits. Private student loans from banks, credit unions, or other commercial lenders are not covered by any part of this law; those lenders set their own terms.

Employer Student Loan Payments Made Permanent

The law permanently extended the tax exclusion under Section 127 that lets employers contribute up to $5,250 per year toward an employee’s student loan payments without that amount counting as taxable income. The benefit was set to expire on January 1, 2026; the sunset date is now gone.² If your employer offers this benefit, it is now a permanent part of the tax code.

Tax Treatment of Forgiveness Is Unsettled

The American Rescue Plan Act of 2021 temporarily excluded forgiven student loan debt from federal taxable income, and that exclusion expired at the end of 2025. Whether balances forgiven under RAP after 30 years will be treated as taxable income at the federal level depends on how the IRS and Department of Education implement the new law. Roughly 20 states reverted to treating forgiven balances as taxable in 2026 after the federal exclusion expired; nine states have no income tax and are unaffected. Borrowers approaching forgiveness should check with a tax professional as implementation guidance develops.

Key Dates

July 4, 2025: The law was signed. PSLF credit for RAP payments and certain other provisions took effect immediately.¹
July 1, 2026: RAP launches. New Parent PLUS and graduate borrowing limits take effect. Existing IDR plans stop accepting new enrollees.³
July 1, 2028: Borrowers still on ICR, PAYE, or SAVE who haven’t picked another option are moved into RAP automatically.

If you’re already in repayment, pull your qualifying payment count on StudentAid.gov and compare your current plan against RAP well before the July 2028 deadline forces the switch.

1
Congress.gov. H.R.1 – 119th Congress (2025-2026)
2
Congress.gov. Text – H.R.1 – 119th Congress (2025-2026)
3
Congress.gov. The Repayment Assistance Plan (RAP) in P.L. 119-21
4
Federal Student Aid. Student Loan Forgiveness
5
Federal Student Aid. Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act
6
Federal Student Aid. One Big Beautiful Bill Act – Important Definitions
7
Federal Student Aid. One Big Beautiful Bill Act NSLDS Eligibility Processing Updates