How to Choose Between Student Loan Repayment Options
A few important caveats:
- If you are married and file taxes jointly, your monthly payment is determined by your combined household income. Your monthly payment might be reduced if your spouse also has federal student loans.
- Your monthly payment is reduced by $50 for each dependent claimed on your federal tax return.
- A minimum payment of $10 applies regardless of deductions.
RAP also comes with protections to ensure you reduce your loan balance each month. The government subsidizes interest charges for any borrowers whose monthly payment is less than the interest accrued in the last payment period. This ensures your total loan balance never exceeds the balance you started RAP with.
Additionally, the government matches your principal payment if your monthly payment does not reduce your principal balance by at least $50.
Borrowers who choose RAP are eligible for PSLF, which can result in forgiveness after 120 qualifying payments. After 30 years of regular qualifying payments, any remaining loan balance is forgiven.
However, Mayotte cautions borrowers about choosing RAP for forgiveness options, as it might not always mean saving money.
“People get caught up in the word ‘forgiveness,’ and I get it. I am a sucker for buy-one-get-one deals at the grocery store without doing the math myself, but that’s not the name of the game. The name of the game is paying the least amount out of your own pocket over time,” she says.
