U.S. Department of Education Introduces New Student Loan Repayment Plan with Principal Reduction Guarantee

The Biden administration has unveiled a transformative Repayment Assistance Plan (RAP) set to launch in July 2026, fundamentally restructuring income-driven student loan repayment. Under RAP, borrowers' balances will decrease monthly regardless of payment size—a first for federal student loans.

Low-income enrollees may qualify for payments as low as $10 monthly, with the Education Department waiving unpaid interest and contributing up to $50 monthly to ensure principal reduction. The plan calculates payments using Adjusted Gross Income, applying residual amounts to principal after covering accrued interest.

This structural innovation addresses the chronic issue of negative amortization that plagued previous income-driven plans, where sub-interest payments caused balances to grow despite on-time payments. The "One Big, Beautiful Bill" provision marks the most significant overhaul of student loan repayment mechanics in a decade.