How to Lower Your RAP Payment

The Repayment Assistance Plan (RAP) brings a new payment plan to the student loan landscape.We’ll cover how to calculate the payment and how to get it down to the lowest possible amount.How is RAP calculated? The minimum payment is $10 per month, and there’s a very odd stepwise function that starts at 1% of income and caps at 10% of income.Here’s how it works: Adjusted gross income (AGI)Monthly RAP payment$10,000 or less$10 per month$10,001 to $20,0001% of AGI$20,001 to $30,0002% of AGI$30,001 to $40,0003% of AGI$40,001 to $50,0004% of AGI$50,001 to $60,0005% of AGI$60,001 to $70,0006% of AGI$70,001 to $80,0007% of AGI$80,001 to $90,0008% of AGI$90,001 to $100,0009% of AGIAbove $100,00010% of AGI How does the RAP deduction work? Previous repayment plans, like the Saving on a Valuable Education (SAVE) Plan, would allow borrowers to exclude tens of thousands of dollars of income before they had to pay anything.

In contrast, RAP is far less generous in this area.You only get to reduce the above amounts by $50 per month per dependent on RAP.So the primary way to reduce RAP payments is: Reducing AGI without reducing what you earn Filing taxes in a smart way Let’s go over both of these.How to reduce AGI on RAP Reducing AGI on RAP is similar to reducing AGI on other income-driven repayment (IDR) plans.

The goal is to get your adjusted gross income lower without actually making less money.That usually means maxing out pretax accounts such as: 401(k)s and 403(b)s Health savings accounts (HSAs) 457 plans Flexible spending accounts (FSAs) Solo 401(k)s and SEP IRAs These accounts can reduce your AGI by tens of thousands of dollars.There’s another account on top of this called the defined benefit plan, which could even allow you to reduce your AGI by six figures.This is primarily a tool for practice owners within the six-figure borrower space.

The goal in general is to reduce your AGI so that you don’t have to lose 10% to your “student loan tax,” which, if you’re going for forgiveness, is basically an extra income tax that other folks don’t have to pay.When you're in retirement, your tax rate will generally be lower, and with your student loans forgiven, it would likely be way lower for most borrowers.That’s why pretax accounts are the primary weapon in your arsenal for reducing AGI on RAP.Keep in mind, there are some expenses, such as mortgage interest or charitable deductions, that can reduce your taxable income, but those do not reduce your AGI.

So, unfortunately, you can’t buy a baller house or donate an oodle of money to your favorite charity and pay less on your student loans.The best ways are to put away money for the future in your qualified and retirement accounts on a pretax basis.How to file taxes to lower your RAP payment If you file jointly for taxes, you each earn more than $100,000 per year, and you both have a lot of student loans, your RAP payment will likely be nearly the same whether you file jointly or separately (assuming you’re married).The main tax strategy for a couple in this boat would be to delay filing their taxes by requesting an extension, depending on their annual recertification date for RAP.

However, if only one of you has student loans, or you both earn five figures but have six figures of debt, you might save a lot by filing separately.The middle-class RAP loophole For example, one potential loophole could be if both spouses earn $55,000 a year, you would have to pay 5% of your income each if you filed separately, but you’d have to pay 10% of your income if you filed jointly.That might be a way to save $5,500 a year in payments.I’m calling this one the “middle-class RAP loophole.” Filing separately when only one spouse has the debt The other big opportunity is filing separately when you’re the only one with the debt.

Assume a pediatrician earning $200,000 a year is married to a urologist earning $500,000 a year.If they filed jointly, her RAP payments would be about $5,600 per month.However, if they filed separately, the pediatrician's RAP payments would be about $1,560 per month.That’s a massive difference.

They would, however, pay about $5,000 a year in extra taxes, but if their student loans were forgiven after 10 years with Public Service Loan Forgiveness (PSLF), they might be able to recoup some of that extra tax by filing an amendment and going from separate to joint on their 1040-X at a later date.So there are clearly a lot of creative ways to reduce RAP payments through smart tax strategies.* Note: The filing scenarios above are general examples, not tax advice — your numbers depend on your income, debt and state.Confirm any filing decision with a tax professional before you act.

Get a custom plan to lower your RAP payment We’ve specialized in custom student loan strategies for over 10 years, and we’d love to create a fully customized plan to reduce your RAP payment to the lowest legally possible amount.Book your plan with our team of experts and find out what you could be missing that might save you a huge amount of money.Lower RAP payments can sometimes also result in increased interest subsidies, so it could be a move that pays for itself right away.