A late RAP payment can cost student borrowers monthly savings

Federal student loan borrowers using the new Repayment Assistance Plan have a fresh way to cap monthly bills, but the plan also puts more weight on the payment due date. According to higher education experts cited by CNBC, paying late can mean losing benefits designed to keep balances from growing.

RAP, which became available July 1, is an income-driven repayment plan. That means the monthly bill is based on a borrower’s earnings rather than the size of the loan alone. Under the plan, payments generally run from 1% to 10% of income, with higher earners owing more each month, according to CNBC.

The plan also leads to loan forgiveness after 30 years, CNBC reported. Nicholas Kent, a senior Education Department official, wrote on X at the beginning of the month that nearly 46,000 borrowers had already applied to enroll.

What borrowers lose after a late payment

Rich Williams, a former deputy assistant secretary at the Education Department, told CNBC that RAP was built partly to address a common student-loan problem: balances that rise because interest keeps adding up faster than payments reduce the debt.

Two RAP features are meant to limit that issue, Williams said. The first is an interest waiver. If a borrower’s monthly payment does not cover all interest that built up that month, the Education Department can wipe out the unpaid interest.

The second is a principal match. Principal is the original loan amount still owed, excluding interest. If an on-time payment cuts principal by less than $50, the department may add as much as $50 so the balance moves down for the month, according to Williams and terms cited by CNBC.

Those two features depend on paying by the due date. Mark Kantrowitz, a higher education expert, told CNBC that a borrower who is late by one day under RAP can lose money-saving benefits. Williams also said a late payment will not count toward forgiveness under RAP.

CNBC reported that the same late payment would not count for Public Service Loan Forgiveness, the program that can cancel remaining debt for eligible public-sector workers after 120 qualifying payments.

Kantrowitz said RAP is stricter than other repayment options because other plans include some tolerance before a payment is treated as late, according to CNBC.

One benefit still applies

A missed due date does not remove every RAP feature for that month. CNBC reported that borrowers can still receive the plan’s $50 discount for each dependent listed on their federal tax return. Dependents often include children, though they can also include other qualifying relatives in some cases.

Autopay can help, but requires attention

Williams told CNBC that automatic payments are one way borrowers can reduce the risk of missing a due date. The Education Department is also offering a 1-percentage-point interest-rate reduction through June 30, 2028, for borrowers who sign up for autopay with their loan servicer by the end of September, CNBC reported.

Autopay does not remove every risk. CNBC noted that some borrowers have previously reported incorrect amounts being withdrawn, so Williams said borrowers should still review monthly charges.

Williams also said borrowers whose income falls should contact their loan servicer so the payment can be recalculated, rather than risking a missed bill. He added that paying more than the required amount can put an account into “pay ahead” status, which may interfere with RAP’s interest waiver and principal match.

This story draws on original reporting from CNBC.