The mega tax bill known as the big, beautiful bill replaced IBR with RAP as the Income Driven Replacement Loan option for new borrowers taking out federal student loans after July 1, 2026. I am planning a larger post on the differences between IBR and RAP in the near future when I have more time. (Family is visiting and I am distracted right now.)
In the meantime, I would like to lead with a quick observation about an unintended consequence of the new RAP bill payment schedule.
The RAP student loan option applies a tiered percentage to the ENTIRE adjusted gross income to determine the student borrower’s monthly payment. The percentage increases by 1 percentage point for each $10,000 in AGI.
The tiered percentages is 1 percent for income between $10,001 and $20,000, 2 percent for income between $20,001 and $30,000 and so on….
Consider the consequence of a $2 increase in income from $79,999 to $80,001
Seven percent of AGI $79,999 leads to an annual student loan bill of $5600.
Eight percent of AGI $80001 leads to an annual student loan bill of $6400.
A $2 increase in AGI leads to an $800 increase in annual student loan payments.
There are 10 tax cliffs in this bill, with the largest at $100,000.
I believe a $1,000 increase in AGI from $99,500 to $100,500 would lead to higher student loan payments of $1k
Wow!
Did they DOGE the entire Joint Committee on Taxation economic staff?
What else did they miss?
A thorough analysis of the new student loan regime will be available by the end of the month.