Education Department Launches Income-Based Repayment Plan With Late-Payment Penalties

The U.S. Department of Education launched the Repayment Assistance Plan on July 1. CNBC reported that monthly payments under the plan range from 1 percent to 10 percent of a borrower’s income, with loans forgiven after 30 years of qualifying payments.

CNBC reported that 46,000 borrowers had submitted applications by early July. The plan erases interest that exceeds the monthly payment and adds up to $50 to principal when an on-time payment reduces the balance by less than that amount. A payment even one day late eliminates both benefits and does not count toward the 30-year forgiveness period or Public Service Loan Forgiveness.

CNBC reported that RAP has no grace period, unlike other federal income-driven plans. Borrowers keep the $50-per-dependent monthly discount even after a late payment. The discount applies for each dependent listed on the borrower’s federal tax return.

CNBC reported that borrowers who enroll in automatic payments by September 30 receive a one-percentage-point interest-rate reduction through June 30, 2028. Some borrowers have already seen incorrect autopay withdrawal amounts. If income falls, borrowers should notify their servicer to adjust the payment, Rich Williams said.

Paying more than required in one month can place the account in pay-ahead status and disqualify the borrower from that month’s benefits.