Currently, both the US House of Representatives and the Senate (PDF) are considering changes to income-driven repayment (IDR) student loan plans as part of their budget reconciliation bills. Though their proposed Repayment Assistance Plan (RAP) would result in repayment burdens similar to most current IDR plans, both proposals could do more to support future borrowers, who could be subject to this plan.
IDR plans make student loan debt more manageable for millions of borrowers in the US. These plans are based on a borrowers’ income and family size, offering lower monthly payments than other plans.
To better support borrowers struggling to repay their loans, federal policymakers could consider adjusting payment thresholds for inflation and removing a substantial penalty for married borrowers. Making these changes would benefit borrowers who make around $50,000—roughly the median individual earnings for US workers (PDF)—the most.
How the proposed Repayment Assistance Program differs from previous income-driven repayment plans
Under the proposed RAP, borrowers would be able to opt in to a plan where they pay according to their income. If their income is $10,000 or less, they’d pay $120 per year ($10 per month). Borrowers who make between $10,001 and $20,000 would pay 1 percent of their annual income, those making between $20,001 and $30,000 would pay 2 percent, and so on, up to $100,001 or more, at which point the rate becomes 10 percent of annual income.
To ensure borrowers consistently see their loan balance decrease, borrowers would receive an interest subsidy if their payment doesn’t fully cover the interest, and principal-matching payments up to $50 per month. Borrowers with children would receive a $50 reduction in monthly payments per child.
This payment formula differs significantly from the format of current IDR plans, which use the federal poverty level as a threshold. This automatically builds in provisions to account for inflation (with the threshold at which payments start increasing to account for inflation over time) and family size (with the threshold increasing for each additional family member).
Without inflation adjustments, monthly payments will increase over time
Neither the House nor Senate bill adjusts payment thresholds for inflation. This means as incomes rise over time, borrowers who make the same amount of income in real terms would gradually pay a larger percentage of their income over time.
To understand the effect of the proposed RAP, I looked at how borrowers’ payments could change if inflation continues to increase at current levels.
Borrowers with very low incomes—those earning below roughly $12,000 in 2025 dollars— would see their payments stay the same or decrease. That’s because I assume the $10 per month minimum payment would also not be inflation adjusted. Assuming inflation similar to the past 20 years, I find that by 2045, a $10 monthly payment would be equivalent to roughly $6 per month in today’s dollars.
However, for borrowers earning between $12,000 and $100,000 in 2025 dollars, the effect of inflation gradually would increase the amount they’d have to pay, even if their incomes stay the same in real dollars. This is because borrowers would be subject to paying larger percentages of their income.
For example, a borrower who earns $55,000 would pay $2,750 per year (5 percent of their annual income) in 2025, but around $3,300 in today’s dollars (6 percent) in 2035, and $4,950 in (9 percent) in 2045.
Under the House bill, borrowers facing a larger payment would be unable to switch from a RAP back to a standard plan, where their payments could be lower. Switching to a standard plan would be allowed under the Senate’s proposal.
Proposed changes would penalize married borrowers who are both on a RAP
The RAP imposes a substantial penalty if two borrowers who are both on the plan decide to get married.
For example, two borrowers who both earn $55,000 would pay a 5 percent rate on their loans. That’s $2,750 per borrower or $5,500 together as an unmarried household. If they were married, the amount they would owe under the RAP would double to a total of $11,000 for both borrowers (or 10 percent of their combined income, $110,000).
Though the House bill would enable couples to avoid the rate hike if they file their taxes separately, fewer than 10 percent of married couples do so (PDF). By comparison, the Senate bill requires the program to consider household income, regardless of tax filing status.
This marriage penalty would be largest for couples where each person makes between $21,000 and $60,000 (or $42,000 to $120,000 in combined income). In these cases, married borrowers earning the same amount would see their payments at least double.
Under current IDR plans, monthly payments can increase when two borrowers marry. However, the difference in payments is not nearly as extreme. For example, on the Pay As You Earn plan, a household where both members of a married couple make $55,000 would pay a total of $6,305 if they file separately and $7,827 if they file together. That’s only a 24 percent increase, compared with the Senate’s proposed 100 percent increase.
Changing the assessment rate table could help keep payments more stable for borrowers on RAP
Congress could help prevent “bracket creep” over time by adjusting the income intervals used for the assessment rate for inflation. For example, Australia, which has a similar system of repayment intervals, updates income thresholds annually.
If policymakers think a household of two married borrowers should pay more than two single individuals living together, they could set a different assessment rate table for married couples. Setting slightly higher household income rates for married couples would acknowledge the financial benefits of marriage (e.g., sharing employer benefits and access to certain tax credits) without doubling loan payments for some married couples.
Alternatively, policymakers could design the RAP to assess borrowers based only on their individual income, regardless of marriage status.
As Congress finalizes the reconciliation bill, they have an opportunity to increase support for borrowers struggling to repay their loans, particularly as they consider marriage and experience inflation over time.
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