So you’ve finally graduated, but you haven’t had any luck finding a job. Or your job just doesn’t pay enough that you can afford to start paying off your student loans. So what do you do? If this is your situation, you may want to apply to the government Repayment Assistance Plan.
What is the Repayment Assistance Plan?
The Repayment Assistance Plan (RAP) is a program designed by the government to help you if you can’t afford to pay back your student loans. If you decide to apply for the RAP, you must be able to prove that you can’t afford your monthly student loan payments.
You must re-apply every six months for RAP, but there is no limit on how long you can use the program. RAP has two stages – interest relief and debt reduction.
How does the interest relief stage of the RAP work?
The interest relief stage is available for either 60 months or until you are ten years out of school, whichever comes first. The government will calculate an “affordable payment” based on your income. Your affordable payment will go towards paying down your loan principal and interest if there’s any money left after paying the principal. If your payment isn’t large enough to cover the interest, the government will cover the interest instead.
For example, you have a student loan payment of $400. Of this amount, $100 is interest, and $300 is principal. The government determines you qualify for RAP and calculates your “affordable payment” to be $200. Your monthly payment pays down your loan principal by $200, and the government pays a total of $100 toward the monthly interest amount.
How does the debt reduction stage of the RAP work?
You will proceed to this stage of the RAP after you’ve been part of stage 1 (interest relief) for a minimum of 60 months or you’ve been out of school for ten years, whichever comes first.
During this stage of the RAP program, you either continue to pay an “affordable payment” (as calculated by the government) or no payment at all. This will depend both on your income level and your family size. Your payment will go towards paying down your loan principal and interest (if there is enough money to do so). The government will cover any remaining monthly interest and principal amounts.
For example, your monthly student loan payment is $500. Of this amount, $100 is interest, and $400 is principal. Your affordable payment is $100. Therefore, you would pay $100, and the government would pay $300 per month toward the principal amount of the loan and $100 towards the monthly interest.
The Takeaway
You do have options if you can’t afford your student loans. Be proactive and be aware of all the steps involved in applying for the RAP, so you’re ready if you need to apply for it.
