SAVE Borrowers Get Final Notices: Is the New RAP Student Loan Plan the Right Move?

Federal student loan borrowers still enrolled in the defunct SAVE plan are receiving final 30-day notices to choose a new repayment plan, and the first of those windows closes at the end of October, Investopedia reported.

The Education Department said in March it would send guidance to 7.5 million SAVE borrowers after a federal court order ended the Biden-era plan. The department estimated SAVE would have cost more than $342 billion over 10 years.

“The Trump Administration’s policy is simple: if you take out a loan, you must pay it back,” Under Secretary of Education Nicholas Kent said at the time.

Servicers began sending 90-day notices in waves on July 1. Borrowers who miss that deadline now get a final 30-day notice, giving them roughly 120 days in all, The College Investor reported.

Borrowers who still do not act will be moved automatically into the 10-year Standard plan or the new Tiered Standard plan, depending on when their loans were disbursed, Newsweek reported, citing servicer Mohela.

Federal Student Aid has been pressing the issue on social media. “If you’re a student loan borrower who is still enrolled in the SAVE Plan, don’t wait to choose a new repayment plan,” the agency posted on X.

How RAP Compares

The new Repayment Assistance Plan, which opened July 1, sets payments at 1% to 10% of income, minus $50 a month for each dependent, according to an Education Department fact sheet. Remaining balances are forgiven after 360 qualifying payments.

For borrowers who pay on time, the government waives unpaid interest and matches principal payments of up to $50 a month, the department said.

The Tiered Standard plan sets terms of 10 to 25 years based on the amount owed. In the department’s example, a borrower with $30,000 in loans would pay $262 a month instead of $341 under a 10-year plan.

Letting a servicer choose can be costly. The College Investor estimated that a borrower with $35,000 in older loans and $55,000 in adjusted gross income would pay about $397 a month on Standard but about $229 on RAP.

RAP’s lower payments can mean a longer timeline. In an analysis for Forbes, Adam Minsky estimated a borrower earning $100,000 in a family of three would pay about $650 a month on RAP, versus about $740 on Income-Based Repayment.

Over the life of the loan, however, that borrower would pay about $234,000 over 30 years on RAP, versus about $222,000 over 25 years on Income-Based Repayment, Minsky calculated.

Minsky also noted that the interest and principal benefits depend on on-time payments, and that RAP payments do not count toward the 25-year forgiveness term under Income-Based Repayment.

The Institute for College Access & Success has called RAP a “trap,” according to Forbes. The department says the overhaul simplifies repayment, noting that 70% of borrowers report feeling overwhelmed.

Public Service Loan Forgiveness seekers face another wrinkle. Months spent on the Tiered Standard plan do not count toward the 120 qualifying payments, according to The College Investor, which cited the department.

Borrowers do not have to wait for a notice to act. They can compare plans with the Federal Student Aid repayment calculator and apply for RAP or another plan on StudentAid.gov. Help from a federal servicer is free.

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