Student Loan Q&A: PSLF Secrets, Parent PLUS Consolidation, and the New RAP Plan

Repayment Plans (RAP, IBR, SAVE, PAYE)

Is the new Repayment Assistance Plan (RAP) the cheaper option compared to Income-Based Repayment (IBR)?

I will say that generally, the RAP is going to be the cheaper option if you make less than $100,000 a year. And IBR will be the cheaper option if you make more than $100,000 a year. 

Of course, your mileage may vary. Highly encourage you to just go check out the RAP calculator, enter your number and understand exactly what it’s going to cost you. RAP does have two cool benefits though. Number one is no negative amortization. Number two is the $50 a month principal reduction subsidy.

What do I need to do to apply for RAP?

Nothing. It doesn’t even come out until July, and when it does, you just go to studentaid.gov. Remember, any new loans taken out after July 1st, 2026 will only have standard and RAP.

I’m currently on the SAVE forbearance/deferment. Should I wait until they kick me off to switch to a new plan?

You probably shouldn’t wait until they kick you off, but you should run the numbers. The numbers are what’s my payment under IBR, what’s my payment under RAP, and which one makes the most sense for me. 

That’s it. We don’t need to overthink this, and then you just need to enroll in the one that makes the most sense for you. RAP is supposed to start on July 1st and you have 90 days after July 1st to get out of the SAVE forbearance.

Is it true that once enrolled in RAP, you can’t switch to other plans?

That is false. You can switch to other plans once enrolled in RAP.

For RAP or IBR, do I have to include my spouse’s income?

If you file married filing jointly, your spouse’s income is considered because the government views you as one family unit. If you file your taxes married filing separately, it just uses your income. 

Married filing separately increases your taxes because you lose tax credits by doing so. You have to do the math. Do you save $201 over here on your student loans to make it worth it? If it does save you $201 and only costs you $200, it’s worth it.

What is the difference between IBR and ICR (Income-Contingent Repayment)?

IBR is 10% or 15% of your discretionary income, and ICR is 20% of your discretionary income, but ICR is also going away in two years, it’s going to be pretty irrelevant. IBR is always going to be better than ICR for you in terms of delivering a lower student loan payment.

What is the difference between PAYE (Pay As You Earn) and IBR?

For new borrowers, those after 2014, which is most people, PAYE and IBR are exactly the same. However, there is a second bit of nuance here. When you leave IBR, interest capitalizes. When you leave the PAYE plan, interest does not capitalize. PAYE is ending also in 2028, probably going to have to leave 2027.

I am unemployed. Should I put my loans into deferment or forbearance?

Absolutely not. Please don’t go into deferment if you lose your job. It’s the worst thing to do. It’s really bad. It’s dumb, too, because you have a better option. 

And the better option is, if you lose your job, call your loan servicer or just submit a new income-driven repayment plan application online that says, ‘I lost my job. I have no income. Here’s my unemployment stub,’ and then they’ll change your payment to a low dollar. Or zero dollar a month student loan payment.

Public Service Loan Forgiveness (PSLF)

Is there a scenario where time served at a qualifying public service job trumps the amount of payments made for PSLF?

It’s all about both of them. PSLF requires four things to be met for all 120 payments. It’s really three things to be met for 120 payments. 

All the qualifications are counted for every single one of the 120. The qualifications are direct student loans, certified qualifying employment, and qualifying repayment plan. You have to have all three for 120 individual payments. There’s not really a scenario where your employment trumps making the payments because they go hand in hand. You’ve got to do both at the same time.

I am close to 120 payments for PSLF. Should I wait for the “buyback” program to process my forbearance months?

I would roll an IBR today and just get it done. I wouldn’t wait for buyback. I wouldn’t wait for anything else. Just get it done. Huge buyback backlog. It’s not going down. For a lot of people, it’s probably going to take more time and potentially cost more money than just doing PSLF the normal way, getting back on repayment and just doing it.

Do older FFEL loans qualify for PSLF?

FFEL loans don’t qualify for public service loan forgiveness at all. If you had old FFEL loans, you had to consolidate between 2021 and 2023, and then you had to submit a new employment certification for all the old dates that you think qualify for PSLF. 

You had to do both of those things to qualify for the PSLF waiver. If you consolidate those FFEL loans today, it resets your clock. You will have another 10 plus years of repayment for PSLF.

Can you get PSLF twice if you have both undergraduate and graduate loans?

Every single loan maintains its own count. There’s no limit to public service loan forgiveness. Every loan just has its own count. And you can see it when you log into your dashboard. 

You can see all the different payment counters. As long as you keep working and doing your whole thing and making sure you’re on the right repayment plan.

Parent PLUS Loans

What are the pros and cons of Parent PLUS loans?

Parent PLUS loans pretty much don’t have any pros anymore. They’ve all been eliminated. The only pro with Parent PLUS loans is that there are limited credit qualifications. 

The cons of a Parent PLUS loan are multiple. Number one, it’s a higher interest rate. Number two is there’s a 4.5% origination fee. Number three, the only way you’re repaying Parent PLUS loans are the standard repayment plan and there’s no longer any access to public service loan forgiveness. 

My recommendation for parents is when you’re comparing Parent PLUS loans to private loans, shop and compare. If you can beat the interest rate on the Parent PLUS loan with a private loan, it’s probably a better option.

I have existing Parent PLUS loans and I am struggling to pay. What should I do?

If you have a Parent PLUS loan and you have consolidated it, you have access to income driven repayment plans. Income driven repayment plans set your monthly payment based on your income. If you have not consolidated that Parent PLUS loan yet. 

You need to do it today. Not tomorrow, today, because there is a strict cut off of June 30th to be consolidated. Once you consolidate. You enroll in ICR, and then you enroll into IBR after that. It’s like a two-step process.

I am paying my parent’s Parent PLUS loans and it is killing me financially. What should I do?

I’m a huge not cool person about paying your parent’s Parent PLUS loan. It’s your parent’s loan. You have no legal responsibility to it. 

I also know that it’s very hard to sometimes push back against your parents because of moral feelings, judgment, whatever, but you need to sit down with her and have a real financial planning conversation about what her finances look like. If your mom is low income, she should have consolidated and beyond income driven repayment, which could be very low or a $0 payment. At the end of the day, if you don’t pay, it’s not your problem either. You hold the trump card in that case.

Financial Aid, Paying for College, & FAFSA

What is the proper order of borrowing to pay for college?

The order of operations for borrowing for college. It is always the student’s federal loan first, because that has the most benefits, and the interest rate is likely lower than you’re going to get for the same loan term. Part two is you compare Parent PLUS loans to private loans. 

If you can get a better rate privately on the private loans, they are better than Parent PLUS loans these days because of the changes to Parent PLUS loans. Parent PLUS loans are like your lending of last resort if you can’t beat the interest rate privately.

Is it worth appealing a financial aid award, and how do I do it?

It can be, absolutely. Do you have a reason to appeal? Did your financial circumstances change? Did your child’s scholastic change, like they have higher GPA, better SAT score? Do you have a special skill or award? Do you have a story? 

When you write your financial aid appeal letter, you say that my finances from the FAFSA or the CSS profile do not reflect my current financial situation. And you also want to explain how that’s going to be impactful for the next year. It’s also following your school’s best practices, if you log into your student’s financial aid portal, it’ll usually have a how to appeal section. You should definitely appeal before you accept enrollment.

Should I choose a full-ride honors program or go to an Ivy League school for pre-med?

I am not going to tell you the best college path, the best college for you, or those things. But I will tell you that 9.8 times out of 10, the Full Ride Program will always be better for you financially over the course of your lifetime. 

I don’t know what you’re paying out of pocket, but your goal to maximize the value of college is to pay as little as possible for college. That way, you get the most potential financial reward for college. And the more you pay for it, the less the financial reward over the remaining time in your life will be.

I have an $800k 529 plan, but I’m going to a military academy. Can I just pocket the money?

If you go to the US Naval Academy, which is a phenomenal option, you can always take your money out of your 529 plan, but you only get to waive the penalty. 

If you take the money out of this plan for non-qualifying expenses, you get to waive the penalty, you still pay taxes on it. For you and your parents. It’s just having a conversation on how you want to handle that. Do you want to save it if you go to grad school in the future? 

Do you want to save it and have a dynasty education trust for your grandchildren or your children, your parents’ grandchildren? I think it also has that much money in it, merits a broader conversation about estate planning with your parents.

General Student Loan Advice & Strategy

Should I pay off my private loans or federal loans first?

I would switch to the income driven repayment plan that is the lowest for you for your federal loans. And I would work hard to snowball the debt on your private loans and just pay as aggressively as you can on those private loans. 

The reason I say that is because you get no forgiveness options, no hardship options, no income driven options, all the things. You just want to get rid of those private loans as fast as you possibly can, given your income. After that, then you can look at options for your federal loans. Just tackle those private loans first and then go from there.

Should I refinance my federal student loans with a bank for a lower interest rate?

I am a pretty staunch never refinance your federal student loans. It’s not worth it. You’re probably not going to save much of anything, and you lose all the benefits like income-driven repayment, loan forgiveness, hardship options, and all those things. 

If you already have private student loans, refinance those away if you can get a lower interest rate. Who cares? But don’t do it for federal student loans. Not worth it.

Can I roll my student loans into my home’s HELOC?

Absolutely not. Never ever can mix your student loans with your HELOC. I’d also venture that your student loan‘s a lower interest rate than your HELOC, no, don’t do it.

I have $45,000 of student loans in default. Will the federal government negotiate a lower payoff amount?

No they will not, because they’re not allowed to. The rules for negotiating defaulted student loans are 90% of the current balance, as long as it exceeds the principal. 

They will give you 90% of the principal and interest in collection costs. They will reduce the collection fees by half, or they’ll reduce the collection fees by 100%. You still pay the principal and interest. There’s no benefit, because the law says that you owe the US taxpayer money, and they are not allowed to compromise that. 

The best path for her is honestly consolidation or rehabilitation. She should just rehabilitate if you’re supporting her, make the nine payments, get the default removed from her credit report, and just get back on track with her loans.

Does investing in a traditional retirement account lower my student loan payments?

If you have a Roth, your payments are not lowered. You’d want to do a traditional IRA, not a Roth IRA. The Roth IRA is after tax money, it doesn’t lower your adjusted gross income. 

A traditional IRA does lower your adjusted gross income. Same thing if you want to do a 401(k) or 403(b), you want to do the traditional versions, not the Roth versions. Those will also bring down your adjusted gross income so that you can save for yourself while also lowering your student loan payment.