Student Loan Update April 2026 – Part 2: It’s A T.R.A.P

April 28, 2026: Do you like options? The more the merrier, right? The Department of Education has a different idea bout that when it comes to student loan repayment. In fact, they’re changing the standards and expectations when it comes to repayment in general. Will the new plans on July 1st save higher education and borrowers? Or are they trying to treat a symptom of the bigger cost of rising education? 

Just have your knowledge of T.R.A.P. (Tiered or Repayment Assistance Plans)...

https://studentaid.gov/announcements-events/idr-court-actions

https://www.congress.gov/crs-product/IF13075

https://www.nerdwallet.com/student-loans/learn/what-is-the-new-repayment-assistance-plan-rap-for-student-loans

https://www.ed.gov/laws-and-policy/higher-education-laws-and-policy/higher-education-policy/negotiated-rulemaking-for-higher-education-2025-2026

https://www.studentloanplanner.com/repayment-assistance-plan-rap-calculator/

https://thecollegeinvestor.com/58820/repayment-assistance-plan-rap-student-loan-calculator/

Music by NEST-BEATZ Official from Pixabay
Music by Aliabbas Abasov from Pixabay

Music by OctoSound from Pixabay

#StudentLoans #LoanRepayment 

Transcript

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Hello and welcome to the Thinking Ahead podcast. My name is Renaldo Stephens and I am your host on this journey to discover more and find out the truth about careers, college and finance. My student loan episodes usually bring in a few new listeners, so if you're new to the podcast, welcome. Thanks for taking time out of your busy schedule to listen to what I have to say.

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I started this podcast because my college years were kind of like stumbling through a dark room. You've never been in and where you're trying to find the light switch, you fool around, stub your toe, expletives spill out, you knock over an expensive face. How did that get there? And at the end of my five year endeavor, I flipped the switch on, looked around and found over $45,000 of damage are, in my case, student debt in my wake.

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I don't want anybody else to have to go through that. And they don't have to. Nobody has to. They just need someone to share the information with them. And so I've spent the past year and then some exploring new ways to not even new ways, just many ways to lower the cost of finding your career path, as well as highlighting some of the pitfalls along the way.

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If you find the information that I share useful, please do as both a favor and subscribe. Follow and share this or any episode with whoever can benefit.

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Last episode I broke the news that the ongoing litigation, or at least the main litigation regarding the SAVE plan, that is the savings on a valuable education plan had come to a close with the appeals court Finally deciding, finally deciding that all borrowers currently on the SAVE plan will have to leave the plan within 90 days of July 1st, 2026.

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This is a hole two years earlier than originally proposed and legislated in the quote unquote big, beautiful bill. But the states who put forth a lawsuit just couldn't wait. Now, I could go on into how Missouri and Mahela, being the largest servicer of student loan debt in America, puts them directly at odds with their customers in said lawsuit because Missouri was one of the defendants, one of the not defendants.

00;03;13;27 - 00;03;50;15

Missouri was one of the states that brought the case to the courts, but that will have to wait for another episode and since I spoke about all the current borrower options. Last episode Episode 23 New Listeners. Today I will focus on the options that will become available to current and future borrowers starting on July 1st. Disclaimer Before we move on a little reminder I am not a financial advisor.

00;03;51;10 - 00;04;25;13

Any information or advice I provide is for informational purposes only. As with all financial advice, do your own research and seek advice from a professional. Backslash Disclaimer Closed bracket. Enter the first thing we need to know about student loan payments moving forward is that they have been legally mandated by legislation. As I said before, the quote unquote big, beautiful bill that eliminated, save and repay plans.

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But it also brought in the tier repayment plan and the group plans to replace them and in their terms, the people who brought the legislation to simplify the student loan and student debt system after the laws were put into place. There were several committees, the main one being Ries. That is the re-imagining and improving student education Committee, who discussed how the law would be interpreted and implemented as rules for universities, as well as institution compliance with the dispersal and use of funds.

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If you have 45 hours of spare time, I'm raising my eyebrows right now. You can check out the committee recordings on the Department of Education website, and they are under the negotiated rulemaking for Higher Education 2025 page. Link is in the show notes. But as the meme goes, ain't nobody got time for that. So I'm going to keep it simple and give you a rundown of the two paths.

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The only two federal options that will exist for new borrowers in 2026 moving forward. Let's start with the tiered repayment plan that shows up with ten, 15 and 25 year repayment plans. The new tiered plan was agreed upon by the RISE Committee, which was the committee put together to oversee the wording and phrasing of student loan rules based on the wording and phrasing of the quote unquote, big, beautiful bill.

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And just for my personal record, yes, I am going to keep putting, quote unquote, in there. And the reason for committee really is you have to make sure it's not just legally sound, because the lawyers say one thing, but you have to make sure that it's consumer understandable. And that's really what the committee does. Part of the goal of the Beeb was to simplify the student loan repayment plans and process and simplify it.

00;06;47;18 - 00;07;19;17

They did the tiered repayment plan or the tiered standard repayment plan is as follows If you have loans that total under $25,000, you'll have ten years to repay it. If you have loans that trend from 25000 to $50000, you'll have 15 years to repay it. If you have loans that are between 50000 to $100000, you will have 20 years to repay it.

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And any loans that are over $100,000, I'm going to say that again with Dr. Evil's accent, $100,000. You'll have 25,000 years to repay. 25,000 years of pay. Wow. You will have 25 years to repay it. How is the tiered repayment plan? Terms are actually a nice relief to people who want to pay back larger loans without the pressure of the higher payments of ten years and the hassle of recertifying the need for an IDR every year.

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So again, with our income driven repayment plans every year, you have to recertify with this tiered repayment plan on the larger amounts. You don't have to recertify. It's automatically put into that 15, 20 or 25 years. At the time of this recording that is flowing into your ear holes. There is not yet a calculator available on the student aid website to show you the payments terms, but Calculator dot Net has a simple student loans calculator that can help you get a rough estimate on your payment schedule and amounts using the schedule that I mentioned for speaking of income or payments.

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Like I mentioned before, come July 1st this year, new loans taken out will no longer be eligible for any of the current plans. However, if you already have a student loan come July 1st, you will have 90 days to choose a different income driven repayment plan. So again, like I mentioned in the last episode, the income contingent, the income based are the pay as you earn.

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Plans are available for you if you've already taken out a loan. However, if you take out a loan after July 1st, you will only be able to enroll in wrap as far as income driven repayment plans. So let's talk about wrap and what's wrap, you ask. Well, I suppose that you if you grew up in the suburbs of Michigan, not near Detroit, then yeah, you probably have no clue.

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But, you know, we're going to set aside Dr. Dre and even Kid Rock, and we're going to actually talk about the repayment assistance plan that is rolling out this year. Wrap or Repayment Assistance Plan will be available starting July 1st. There are no calculators available on the student aid or Department of Education website to show if the RAP is better than the current pay.

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or IBR or ICR plans. So if you want to see what RAP will look like, given what we know about it, you'll have to go to over to college investor dot com or student loan plan account to plug in your numbers. I use both and I'm going to show you what came out from that. One thing that the repayment assistance plans creators are proud of is how quote unquote simple the math is.

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Payments start at 1% of your income if you earn $10,000 and go up to 1% for every $10,000 you earn. For example, if you made $35,000 a year, your monthly payment would be 3% of your AGI. That is your adjusted gross income divided by 12. And if you made $45,000 per year, your monthly payment will be 4% of your AGI divided by 12 and so on and so forth.

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Until you reach $100,000 or higher where your payments would be capped at a maximum of 10% of your adjusted gross income. If your payments are too low to cover interest in this plan, the government will subsidize payments on your principal up to $50 a month. You'll also get the benefit of a $50 deduction a month from your loan amount for each dependent you claim on your tax return.

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Just a reminder to the doggy dads and cat moms out there, pets don't count as dependents. The wrap extends terms a bit longer, offering forgiveness only after 360 months. That is 30 years of dedicated payments. So you might be thinking if rap maxes your payments at 10% of your adjusted gross income, then it doesn't sound too bad. Right.

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But remember, and this is super important, AGI is not your take home pay. It is your pay before taxes and other expenses. And if you happen to live in a state that charges state income taxes along with federal taxes, that leaves you even less actual discretionary or in your bank account income. One thing you can do and probably should do if you switch to this plan is file your taxes separately.

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If you are married, the AGI that they use to calculate your payment goes off of your posted tax returns. And remember, only certain loans are eligible for certain repayment plans. I said this before, but I'm going to say it again to make sure we're all on the same page. The loans that are eligible to apply for wrap are subsidized, unsubsidized graduate plus INS, consolidation loans.

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If you have Stafford loans, FFEL or Perkins loans, then you should consider the current payback options. If you're having trouble paying on the terms that you're currently under. And I mentioned this in my last episode, but Parent Plus borrowers are not going to be allowed to apply for the wrap. And in addition to that, they will face new restrictions on July 1st.

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If you're a parent, you will not be able to borrow as much as before. Whether you're talking about per student are overall, the repayment restrictions will also keep PLUS loans from being consolidated with normal student loans to receive the payback benefits. Under the current consolidation program. This is one of the many reasons why, as parents, you should start thinking about your child's education as early as possible.

00;14;59;26 - 00;15;36;19

529 plans and state savings plans go a long way to reduce future debt. So if you have a student that is not yet in college, I recommend looking at those options. Long story short, come July 1st, we will have new loan amounts and income driven repayment plans, a whole new world. However, the IDR plans are how all of this mess got started in income driven repayment plans.

00;15;36;19 - 00;16;10;08

Republicans and certain state led coalitions weren't happy with the idea that President Biden would have introduced a new plan matching savings on a valuable education. Man, you know, and that plan was hated because it could have Not that it would, but it could have led to millions being forgiven at the end of the loan terms. And on top of that, most people under that plan would have qualified for the payments to be as low as 5% of discretionary income.

00;16;10;27 - 00;16;37;01

And that amount was calculated by comparing the amount of money that your W-2 says versus the earned poverty limit. And I believe that the goal of that was to again, boost the American economy When the save plan was thought of and introduced, we were coming out of the what I call COVID blip. So our markets were doing well.

00;16;37;06 - 00;17;17;25

We needed money to flow into the market and not just back into the Department of Education and the federal coffers. So I believe that Joe Biden was trying to keep the economy moving by freeing up to several hundred a month for those big borrowers. And as I said earlier, the whole goal well, suppose the goal of rewriting student loan options was to simplify the repayment process.

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However, the current administration and many that back them claim very loudly that they have a distrust of higher education institutions. Considering that colleges get a good amount of money from student loans, is there any surprise that McMann Trump and all the others on Capitol Hill would go out of their way to dismantle and make student loans impractical? On the other side of the argument, though, and part of me can't believe I'm saying this, I can't really blame them runaway costs at universities and colleges have hit Americans hard, and the reason more people are getting loans isn't so they can neglect them.

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It's because they're out of payment options. Even students with scholarships and well-to-do parents are turning to student loans so they can go to the school of their choice and graduate with the hopes of making enough income to pay back the loans in a reasonable time while having a good life. Higher education is beginning to crack at the seams, but it's not just because of student loans.

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Access to higher education has always been a problem, but student loans were seen as a way to grant that access. However, solutions, no matter how creative they are, can create new problems. And in this case, the student loans that were created to solve the problem of access have created more problems than the current university system can bear. How can we claim to be the best and richest country in the world while having the largest amount of student debt per capita?

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And it's not only government sanctioned debt, but it's government endorsed debt at that. I'll also point out begrudgingly that it's possible to get private student loans for school. Many graduate students go for this option because they reach the federal loan limit before paying for all of grad school. It's not the best choice. But for some people that are in their seventh year and trying to get their doctorate, it's the only option I'll close out with this.

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Student loans are a symptom of a larger problem. The ever rising costs of tuition for higher education. While I don't completely agree with the solution that the majority came up with again Senate majority, I don't necessarily agree with the other side either. We are the only first world country that deals with a student loan problem. The size that we do.

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Millions, if not billions of dollars, are kept from circulating in local economies because the money is sunk into universities and other institutions on the front end and then kept out of the spenders pockets on the back end. By increasing interests, we are heading toward a higher education bubble bursting because the market cost of education is ridiculously higher than what people value it at.

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Combine that with tuition rising much faster than wages and inflation, as well as a declining young population, and it's only a matter of time before tuition will have to either fall or institutions close. And quite frankly, we're seeing more of the latter already. For students, I will say this the moral with all college loans is the same as it has always been.

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Have a repayment and a job plan, act early and act quickly. In the next episode, I'm going to touch on the differences and the things to look for when judging whether you should go to a community college or a state college or university. And hopefully I'll be able to highlight all of the pitfalls. But I'll be here to share what information I find and what information I have learned in my attendance of both institutions.

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Until next time sets your goals. Do the daily work, read the fine print, and of course, keep thinking ahead.