Beginning July 1, a new federal repayment plan will change how many borrowers’ monthly student loan bills are calculated — and small moves to lower taxable income could shrink those payments. With the Biden-era SAVE plan struck down earlier this year, millions leaving SAVE face higher bills unless they adjust how income is reported or use pretax benefits.
Financial planners and borrower advocates say the key is the Repayment Assistance Plan, or RAP, which bases payments on your adjusted gross income rather than the income protections offered by some older programs. The result: trimming your AGI by a few hundred or even a single dollar can alter what you owe each month.
How RAP sets your monthly payment
Under RAP, required payments will generally fall between 1% and 10% of earnings, rising as income grows. Every borrower will owe at least $10 a month; unlike some current income-driven plans, RAP does not carve out a fixed allowance for living expenses when computing payments.
RAP uses adjusted gross income (AGI) to determine the payment amount — that’s your income after certain deductions but before federal taxes. Because the plan’s formula is sensitive to AGI thresholds, even small changes can have notable effects over a year.
For instance, depending on where a borrower’s income sits in RAP’s schedule, a person with an AGI just under $60,000 could pay roughly $600 less over 12 months than someone whose AGI is just above that mark.
Practical ways to lower AGI — and monthly bills
Borrowers looking to reduce RAP payments should focus on legally lowering reported AGI. Experts recommend common tactics often available through employers or for the self-employed.
- Increase pretax retirement contributions — contribute more to a traditional 401(k) or a deductible IRA (contributions to Roth accounts won’t reduce AGI).
- Use pretax health accounts — funding a health savings account (HSA) or certain flexible spending accounts (FSA) reduces taxable wages.
- Claim business deductions if self-employed — ordinary and necessary costs reported on Schedule C, plus retirement and health insurance deductions, lower AGI.
- Take eligible “above-the-line” deductions — for example, the student loan interest deduction when you qualify.
Carolina Rodriguez, director of the Education Debt Consumer Assistance Program, notes employers may offer several types of FSAs — for health, dependent care or commuting costs — that can help chip away at taxable income. Landon Warmund, a certified financial planner, says even modest pretax contributions can shift borrowers into lower payment brackets under RAP.
Dependent credits and other automatic reductions
RAP also reduces monthly bills by $50 for each dependent a borrower claims on their federal tax return. Dependents are usually children but can include other qualifying relatives under IRS rules. These adjustments should be reflected automatically once your tax filing is on record.
Compare monthly savings with long-term cost
Lower monthly payments under RAP do not guarantee lower total costs. RAP offers forgiveness only after 30 years of qualifying payments, longer than the typical 20- or 25-year timelines on some earlier income-driven plans. That means lower monthly bills now can translate into more interest and higher lifetime payments for some borrowers.
| Plan element | RAP | Some existing IDR plans (e.g., IBR) |
|---|---|---|
| Payment basis | AGI (1%–10% of earnings) | Varies; may protect portion of income |
| Minimum monthly payment | $10 | Can be $0 for low-income borrowers |
| Forgiveness timeline | 30 years | 20–25 years (for eligible borrowers under IBR) |
| Availability to new borrowers | Only IDR option after July 1 | Existing borrowers may remain in their plans |
What existing borrowers should know
Borrowers who already hold federal loans can often remain on older plans, such as Income-Based Repayment (IBR). ICR and PAYE will stay available to current borrowers until mid-2028, though those programs no longer carry the same path to forgiveness they once did. If you plan to switch, you may be able to preserve credit toward eventual forgiveness for past qualifying payments.
“RAP has meaningful advantages for people who plan and use pretax benefits strategically,” Warmund said. “But it’s important to weigh lower monthly bills against a longer forgiveness timeline.”
With the SAVE plan ending after a federal appeals court ruling earlier this year, many borrowers forced to leave SAVE will want to run the numbers before July 1. Evaluate both the short-term monthly relief and the long-term total cost before choosing or switching plans.
Bottom line: small, legitimate reductions in reported income — through pretax retirement contributions, HSAs, FSAs or allowable business deductions — can lower your RAP payment. But those savings should be balanced against the plan’s 30-year forgiveness window and your broader repayment goals.
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Jordan Keller specializes in analyzing the US financial markets. With concrete recommendations, he helps you secure and boost your investments by providing strategies that adapt to market fluctuations.