RAP vs. Refinancing: How to Choose the Right Student Loan Repayment Strategy

One of the first major financial decisions new graduates face is how to repay their student debt. For many borrowers, the question comes down to whether to refinance into a private student loan or stick with a federal income-driven repayment (IDR) plan that comes with the opportunity for lower monthly payments and loan forgiveness. 

The newest IDR option created by Trump’s One Big Beautiful Bill — the Repayment Assistance Plan (RAP) — has quickly become a central part of that conversation considering other IDR plans will no longer be available for new borrowers after July 2026. Existing borrowers, however, can continue on their current IDR plans for a transitional period (more on that later), but will ultimately need to factor RAP into their decision.

What isn’t being widely talked about is that the new RAP plan shares a key feature with the old REPAYE plan: a built-in interest subsidy. This subsidy can dramatically lower your effective interest rate, sometimes even reducing it to zero, during the early years of repayment. That type of temporary payment relief can be a game changer for borrowers with high debt and relatively low income right out of school.

But that doesn’t mean the new RAP plan will be right for everyone. Let’s break down when RAP might make sense, how to maximize the interest subsidy and situations where refinancing might still be the smarter play.

Quick overview of the RAP plan

The Repayment Assistance Plan should be available no later than July 1, 2026. For students taking out loans or consolidating after that date, RAP or the Standard Repayment Plan will be your only federal repayment options. Whereas borrowers with all pre-July 2026 loans still have access to their existing IDR plan (e.g., SAVE, PAYE, ICR and IBR) in the meantime. However, they must transition over to IBR by June 30, 2028 to remain grandfathered in. Any existing borrowers who aren’t enrolled in IBR by that date will automatically be moved into RAP.

Unlike other IDR plans that use a fixed percentage of discretionary income to calculate monthly payments, the RAP plan uses a sliding scale based on adjusted gross income (AGI).

Here’s a quick breakdown of how RAP payments are calculated based on AGI.

Income bracket	RAP payment
Under $10,000	$10 minimum
$10,001 to $20,000	1% of AGI
$20,001 to $30,000	2% of AGI
$30,001 to $40,000	3% of AGI
$40,001 to $50,000	4% of AGI
$50,001 to $60,000	5% of AGI
$60,001 to $70,000	6% of AGI
$70,001 to $80,000	7% of AGI
$80,001 to $90,000	8% of AGI
$90,001 to $100,000	9% of AGI
More than $100,000	10% of AGI

Here’s the best part: If your required monthly payment doesn’t fully cover the interest on your loans, the federal government will waive the difference. For example, if your required monthly payment is $100 but your interest accrues $1,000 a month, the remaining $900 of interest won’t be added to your balance.

Because IDR payments are based on prior-year income, new graduates can keep payments very low in their first two years of repayment when they’re likely based on internship or part-time earnings rather than a full career salary.

A few other RAP-specific terms to be aware of:

• Spousal income. You can still exclude spousal income by filing taxes as married filing separately.
• Dependent adjustment. Each dependent claimed on your tax return reduces your monthly payment by $50. Note that you can’t double dip on family size if filing taxes separately.
• Loan forgiveness terms. RAP includes loan forgiveness after 360 qualifying monthly payments unless eligible for Public Service Loan Forgiveness (PSLF), which remains 120 months of qualifying payments.
• Matching principal payment. Includes a matching principal payment up to $50 for borrowers who repay less than $50 in monthly principal.
• Payments are not capped. Unlike IBR, RAP payments don’t max out once you hit the 10-Year Standard Repayment amount. If your income keeps rising, so will your RAP payments.

Use our FREE Student Loan Calculator to see what your monthly payments will be on RAP versus other repayment strategies.

How the RAP plan works for new graduates

To see RAP in action, consider Tim, a law school graduate with $200,000 in federal student debt. He’s married with two kids and needs a clear strategy to manage his six-figure student debt. 

Let’s say Tim completed a summer associate internship after his second year of law school, earning $20,000 total for the year. After graduating, he began working full-time in September, earning only $40,000 for that calendar year. His first full year of practicing law brings in $200,000.

Because RAP payments are based on prior-year income, Tim’s payments are extremely low during his first two years of repayment:

• His calculated monthly payment is a whopping $10 for his first year of repayment and $33 for his second year, based on his prior-years income of $20,000 and $40,000.

• The federal government will cover any unpaid interest above that amount. 
• His effective interest rate is essentially 0%, even though his actual loan rate might be 6% or 7%.

This early subsidy window allows Tim to make other important financial moves, such as paying down private student loans. But after those initial two years, his payments will jump significantly to reflect his full law salary. At this stage, his required payment will likely cover all accruing interest, and the RAP interest subsidy will no longer be a factor in his repayment strategy.

For borrowers like Tim who are working in private practice or corporate law, this might be the point where refinancing becomes a viable option. However, anyone pursuing PSLF loan forgiveness should remain on RAP to preserve their eligibility.

Why the interest subsidy matters when deciding between RAP vs. refinancing

The RAP plan’s interest subsidy provides a meaningful early repayment advantage for new graduates. During the first two years of repayment, the government covers unpaid interest, effectively reducing your loan’s interest rate. This allows you to direct every extra dollar toward high-interest private loans or other financial priorities — without having to worry about federal loan interest ballooning your outstanding balance.

Many lawyers, physicians and dentists will be in similar situations, relying more on private student loans under the new $200,000 aggregate limit for professional-level students beginning July 2026. For these borrowers, RAP’s early subsidy can provide breathing room to really attack higher-interest private student loans before committing to larger federal loan payments.

However, once payments are based on full earnings, the interest subsidy no longer provides a financial edge compared to refinancing. At that point, borrowers with six-figure incomes in the private sector may find refinancing to be a better strategy.

Who shouldn’t use RAP?

While RAP can be helpful for some borrowers, there are exceptions where refinancing might be the more strategic choice. For example, six-figure income earners with modest federal debt might not benefit much (or at all) from the RAP interest subsidy. Likewise, aggressive debt repayers who want to pay off their loans as quickly as possible may find RAP less appealing given its stretched 30-year repayment timeline.

Refinancing is most attractive when you can secure a fixed interest rate lower than your effective RAP rate. Back in 2021 and early 2022, it wasn’t unusual for highly qualified borrowers to refinance into 20-year loans as low as 2.5% to 3%. At those rates, refinancing was a no-brainer for professionals with stable six-figure incomes who work in the private sector.

However, those ultra-low refinancing offers have largely vanished. In 2025, most refinancing offers are closer to 5% to 7%, making them less compelling compared to RAP’s subsidized benefits.

If we’re talking about private student loans, however, refinancing almost always makes sense if you can get a lower interest rate. Unlike federal loans, private loans don’t offer RAP or other IDR benefits, so shopping around for better rates at least once a year or whenever market conditions improve can save you money. Be sure to also take advantage of any cash-back bonuses to help pay down debt faster!

Maximizing your student loan strategy

The new RAP plan is on track to become the primary option for repaying federal student loans, although some existing borrowers will still have access to IBR long-term. While RAP isn’t as generous as some of its predecessors, borrowers can capitalize on its interest subsidy, which can dramatically reduce effective interest costs during the first years of repayment.

RAP is most beneficial for graduates with high debt-to-income ratios (above 1.5:1), borrowers who are juggling other higher-cost debts and those earning five-figure salaries who can take advantage of RAP interest subsidies and long-term forgiveness. It’s also the right (and possibly only) choice for borrowers pursuing PSLF. 

For borrowers with lower DTI ratios in the private sector, refinancing might be more advantageous. However, new graduates might as well max out RAP subsidized interest years before moving forward with refinancing.

Keep in mind that existing borrowers with pre-July 2026 loans aren’t only limited to RAP versus refinancing. You can stay on your existing IDR plan until June 30, 2028, but must grandfather into the IBR plan before that deadline to take advantage of 20- or 25-year forgiveness terms.

It’s also worth noting that RAP could evolve over time. For example, it’s likely RAP will be amended if Democrats have unified control again in the future, which could create additional flexibility or benefits. But there’s no guarantee if or when that could happen. So, it’s best to plan your repayment strategy based on the rules in place today, while staying flexible to adjust if repayment options change down the line.

Not sure which repayment strategy is best for your situation? Book a consult with one of our student loan experts to build a customized repayment plan that accounts for all stages of your career and life.