It’s been two years now since my last update on student loans. (To read my prior update with links to earlier articles, click here.) At that time, the new Saving on a Valuable Education (SAVE) plan was replacing my old favorite Revised Pay as You Earn (REPAYE) plan and was looking like a no brainer for the majority of travel therapists.
Back then, I was feeling like the SAVE plan was almost too good to be true. Unfortunately, it turns out that it was, in fact, too good to be true. It was recently announced that the SAVE plan will be going away; REPAYE won’t be coming back; and even Pay as You Earn (PAYE) will no longer be an option. This is very close to a worst case scenario for anyone in the midst of pursuing student loan forgiveness. I say very close because Income Based Repayment (IBR) will still be an option for current borrowers, and there will be yet another new repayment plan implemented to take the place of those removed, which will be called the Repayment Assistance Program (RAP). The constant changes combined with uncertainty is really getting old at this point.
While frustrating to have so many changes in student loan repayment options recently, I feel like it’s kind of hard to complain. Whitney and I haven’t had to make any payments, nor have we accumulated any interest, on our loans in nearly 5.5 years at this point, and I think many other borrowers are in the same boat. This period of no payments and no interest has saved me about $35,000 and for Whitney the amount is significantly more. I try to keep this unexpected windfall in mind when assessing the adequacy of the new RAP repayment plan.
So exactly how much worse is the RAP plan compared to the prior options? The answer varies quite a bit depending on your loan amount and income level.
RAP Plan Breakdown
- The RAP plan is scheduled to go into effect no later than July 1st, 2026.
- RAP uses a tiered structure based on income to determine monthly payments. Anyone with a yearly AGI of $10,000 or less will pay a flat $10 per month. A borrower with earnings between $10k-$20k will pay only 1% of their AGI toward their loans each year. A borrower with earnings between $20k-$30k will pay only 2% of their AGI toward their loans each year. The percentage paid increases by 1% for every additional $10k in earnings, until a maximum of 10% for those with an AGI of $100,000/year or higher. So someone with an AGI of exactly $100,000 would owe $10,000 per year on their loans, which means monthly payments of $833.33.
- For those with a really low AGI, RAP is really not that much worse than SAVE as far as monthly payments go, but for high earners… not so much.
- There’s also a flat $50/month reduction in payment owed for each dependent child the borrower has, which will help a lot for low income earners with multiple kids.
- As mentioned above, RAP payments are based on your AGI, not discretionary income like prior IDR plans. While much more simple to calculate payments, this is a bad thing for two reasons. Using AGI and not taking into account the poverty line means higher payments with all else being equal. Also RAP payments won’t be adjusted for inflation, so at any given income level your payment will stay the same year over year, whereas there was a slight reduction in the amount each year on prior IDR plans since the discretionary income level increases yearly roughly in line with inflation. Essentially that means that your payment amount will increase at a higher rate over the years than it would have on other income based plans.
- On RAP, student loan forgiveness will happen after 30 years of qualifying payments instead of 25 years on SAVE, REPAYE, or old IBR, and 20 years on PAYE or new IBR. This is the biggest downside of this plan in my opinion.
- Once on RAP, you can’t switch to any other repayment plan. That means that even if you’d have a low payment on RAP right now, you really need to consider how your situation will change over the long term. For low income earners, RAP looks really good, but if your income increases significantly over time, then RAP quickly becomes much worse than other options. Once you’re on it, you’re stuck.
- Like SAVE, RAP has an interest subsidy built in. Any accumulated interest that your payment doesn’t cover will be automatically subsidized so that your loan balance doesn’t grow over time. I’m very pleasantly surprised to see this included.
- Another good aspect of RAP is that if your monthly payment isn’t enough to cover the interest accrued or only just covers the interest, $50 will be removed from your principle per month. That means that no matter what, your balance will gradually decline even if your payment is only $10 per month and is nowhere near covering the accrued interest.
So to sum it up, for low income earners with a high loan balance, RAP is actually really good. Low payments, interest subsidy, and a $50 monthly principle deduction. If it wasn’t for the five extra years to forgiveness, this plan would be just as good as SAVE for low income borrowers.
For higher income borrowers on the other hand, RAP is significantly worse than SAVE, REPAYE, PAYE, or New IBR. Payments are higher, the interest subsidy will be much less beneficial, and having to make 30 years of payment before forgiveness is a huge downside.
What Options are Available Besides RAP?
For anyone taking out their first loan after 2026, the only income driven repayment option will be RAP, but to make things even more confusing than before, options will vary for current borrowers. Those who took out their first student loans before July 2014 will be eligible for “Old IBR,” whereas those who took out their first loan after July 2014 will be eligible for “New IBR.”
The main differences between these plans is that on Old IBR, your payment is calculated by taking 15% of your discretionary income, whereas for New IBR it’s only 10% of your discretionary income. For Old IBR, forgiveness is after 25 years of payments, whereas for New IBR it’s after 20 years of payments. In short, Old IBR is much worse than New IBR in that monthly payments are higher and reaching forgiveness takes five extra years. That’s a major bummer for those older therapists like me and Whitney.
Besides RAP. and Old/New IBR, there are the non income driven options like the standard 10 year repayment plan, extended payment plan, and the graduated payment plan. For most borrowers that decide not to use an income driven repayment plan, the standard 10 year repayment plan will be the default.
So faced with these choices, what’s the average travel therapist to do? Check out the hypothetical scenario and the results below, which should help you in determining the right student loan repayment option for your own situation (though of course you need to run the numbers for yourself and may need to consult a financial advisor for more personalized advice).
The Average Travel Therapist Scenario
We’ve interacted with several thousand travel therapists over the years and have seen a variety of different situations.
Some travelers travel for only a contract or two and then settle down. Maybe because they found a facility or city they loved and couldn’t leave, maybe because they found their soulmate and decided to stay, or maybe because they decided travel wasn’t a good fit for them so they went back home to find a permanent job.
Some travelers, like us, start traveling and then can’t stop traveling. Either because of the higher pay, the adventure, the freedom, and/or the flexibility, they end up doing travel therapy for 5+ years before settling down somewhere. Some even choose to do a version of semi-retirement and continue to travel indefinitely.
These situations are outliers though. The average traveler travels for 2-3 years before settling down into a permanent position. I wanted this scenario to be representative of the majority of travel therapists to help as many people as possible. So, for the hypothetical scenario below, I chose to assume that this travel therapist graduates from school, travels for three years, then settles down into a permanent position where they receive normal raises over the course of their career.
Here are all of the details for this scenario:
- Single individual with no spouse or children
- Travel therapist for 3 years after graduation
- $15,000/year contributed to 401k for retirement
- Working 48 weeks per year as a traveler and making $25/hour as their taxable wage
- Permanent job starting after year 3 with a beginning salary of $75,000/year
- 3% annual raises on permanent job salary
- $15,000/year contributed to 401k for retirement
- $140,000 in federal student loan debt at graduation, all from grad school, with no private student loans
- 6% average student loan interest rate
- The Federal Poverty Line (used to determine payment amounts on Old IBR and New IBR) continues to increase at 2.4% per year, which is the average over the last 10 years
The traveler wants to decide between Old/New IBR, RAP, and standard 10 year repayment for their student loans, with the goal of paying the lowest amount over time.
First, let’s look at what this traveler’s annual taxable income, Adjusted Gross Income (AGI) after 401k contribution, and the federal poverty line will look like over time, to get an idea of how those variables change throughout the repayment period.
Annual taxable income and AGI stay steady for the first few years while traveling before jumping up due to the higher (taxable) pay at the permanent job. (Remember, as travelers our taxable hourly pay is lower than at most perm jobs, and this is what is used to determine student loan repayment, while stipends are not accounted for). After year three, total income and AGI after 401k contribution both rise in tandem at a rate of 3% (assuming 3% raises each year), and assuming the 401k contribution of $15,000/year stays constant. At year 25, annual income ends just below $140,000/year. The federal poverty line increases at the recent average rate of 2.4% starting at $15,650 (the amount for 2025) and ending at just under $28,000 after 25 years.
Payments Over Time
Next, let’s look at how this traveler’s payment would change over time on each of the repayment plans.
On the standard 10 year repayment plan, the payment amount remains constant at $18,648/year ($1,554/month) for the full 10 year term.
The New IBR and Old IBR plans would start with a low payment while traveling, before jumping significantly higher when beginning the permanent job after year four. This payment would gradually grow over time until forgiveness at year 20 on New IBR and year 25 for Old IBR. Note that Old IBR always has a much higher payments than New IBR.
The RAP plan would start with a payment roughly in line with New IBR while traveling (due to the low taxable income), and then jump up when beginning the permanent job after year four. This payment would gradually grow over time until year 30 when the remaining loan balance is forgiven. You can see the stair step nature that comes with the 1% increase in payment with each additional $10,000 in AGI.
A couple more things to note here:
You can see that after year eight, the payment on RAP really starts to climb much more quickly than for New IBR. This is partially due to New IBR being based on discretionary income and RAP being based purely on AGI. RAP payments don’t benefit from a rising poverty line each year.
Since Old IBR is based on 15% of discretionary income, the payments are significantly higher than New IBR or RAP for the majority of the repayment period.
Increases in Interest on Loans Over Time
Now that we know what the payments would look like over time, let’s compare the interest accumulation on Old IBR vs. New IBR vs. RAP.
On New IBR, the payment amount never gets high enough to cover the interest accumulating each month, so a significant amount of interest accumulates over time.
On Old IBR, the higher payments mean that around year 17 the interest is covered completely and the principle starts to be paid down gradually each month with no more interest growth.
On RAP, thanks to the interest subsidy, there is not only no interest accumulated with the low payments early on, but the principle is actually reduced by $600 each year due to the $50/month subsidy. That’s the one good thing that RAP has going for it here over the other two plans. Around year 18, the RAP payments get high enough to really start working away at the principle each month.
The standard 10 year plan isn’t included here since the payment is a fixed amount each month and the loan is paid in full at the end of the 10 year term.
Ending Balance at Time of Student Loan Forgiveness
Now that we know how much interest accumulates each year on the various plans, let’s look at what the ending balance will be for each of the different plans at the end of the respective loan period.
The standard 10 year plan would have no remaining balance after year 10 because you would have paid off the loans.
The balance on RAP in reduced to less than $55,000 due to the high payment amounts and needing to make payments for 30 years before forgiveness.
The balance on New IBR has ballooned due to payments never being high enough to pay down the principle amount and the lack of an interest subsidy.
For Old IBR, the ending loan balance is between the other two plans. Five fewer years of payments than on RAP during the highest earning years means fewer high payments to pay down the principle.
Taxes Owed on Forgiven Student Loan Debt
Now that we can see the ending balances for each plan, let’s take a look at how much would be owed in taxes on the forgiven amount at the end of the loan terms.
Currently, taxes are owed on any student loan debt that is forgiven outside of the Public Service Loan Forgiveness (PSLF) program. While it’s possible that this changes in the future, it’s vital for anyone considering going for loan forgiveness to plan to pay these taxes when determining which plan to choose.
There’s no way to know exactly how much will be due in taxes, because tax rates and standard deduction amounts change each year, but we can estimate. I think that a realistic estimate is 35% of the forgiven amount for this individual working a full time permanent job at the time of loan forgiveness.
Assuming a 35% tax rate on the forgiven amount, here’s the breakdown on taxes owed for each plan:
- $19,000 would be owed on RAP
- $63,000 would be owed on Old IBR
- $82,000 would be owed on New IBR.
- No taxes would be owed on the standard 10 year repayment plan since no student debt would be forgiven.
Total Paid Over Time
Now let’s look at the most important part of this hypothetical scenario: how much is paid in total over the life of the loans.
Interestingly, over the length of the loan, RAP and Old IBR end up being about the same in terms of total amount paid despite RAP requiring 30 years of payments and Old IBR offering forgiveness at 25 years. The difference is only about $4,000. On New IBR, this individual would end up paying significantly less in total than any other plan including the standard 10 year repayment plan. There’s almost a $90,000 difference between New IBR and Old IBR, which really illustrates how bad of a position that these changes put older borrowers in.
Considerations
In this hypothetical scenario for an average travel therapist, New IBR comes out significantly ahead of any other repayment options. So if this therapist began borrowing their loans after July 2014 and are eligible for New IBR, then that would be the best choice.
New IBR in this scenario also has the benefit of most of the total paid being due at the end of the 20 year repayment period. This is important due to the effects of inflation over time. $1 paid at year 10 is worth significantly more than $1 paid at year 20. A dollar lost almost 40% of it’s purchasing power in the last 10 years, to illustrate how significant the effects of inflation can be over longer time periods. For that reason, the standard 10 year repayment plan is actually even worse than it looks on this chart in inflation adjusted terms when compared to New IBR.
RAP and Old IBR end up being much worse than even the standard 10 year repayment plan in this scenario, which is very disappointing. Although paying $18,000/year for 10 years on the standard repayment plan sounds terrible, if this traveler had loans before July 2014 and was only eligible for RAP or Old IBR, then unfortunately the standard 10 year repayment would be the best option.
Although I think this scenario is fairly close to the average traveler situation, of course everyone’s situation will be different in reality. For that reason, I want to now discuss how changes in various factors would change the outcome.
- As income increases, RAP and Old IBR get much worse and even New IBR starts to lose it’s luster compared to the standard 10 year repayment plan. Assuming all variables above stay the same, but starting income at the permanent job increases to $95,000/year with the same 3% annual raises, a borrower on New IBR would pay more over the length of the loan than on the 10 year standard repayment plan. A borrower on Old IBR or RAP would pay almost $130,000 more than on the 10 year standard repayment plan. So, if your income is higher than this scenario, going with the standard repayment may be the best choice.
- On the other hand, lower incomes really favor RAP over the other plans. This could also come into play for those that plan to semi-retire or switch to part time or PRN work at some point in their career, which means a lower income and favors choosing RAP. If this traveler took a part time job making the same taxable income amount as they did while traveling, then they’d pay a lot less in total on RAP and over a longer time period than on any other plan. This shows how important the interest subsidy is for low income earners. So if you plan to go part time later in your career after traveling, RAP could be a good choice.
- The higher your student loan balance, the more the numbers favor RAP over Old IBR, although the student loan balance would have to be very very high for RAP to be better than New IBR. The lower your student loan balance, the more New IBR and the standard 10 year plan begin to be a better option.
- Higher retirement account contributions marginally favor RAP over Old IBR due to the lower AGI making the interest subsidy more valuable.
- Having more dependents favors New IBR and Old IBR more than RAP because the higher poverty line amount used to calculate payments is more valuable than the $50/dependent per month deduction on RAP for higher loan amounts.
- Traveling longer before settling into a permanent job favors RAP because you have more time to take advantage of the interest subsidy with a low income.
- There are also some situations where a traveler who thinks they’ll earn a very high income (well over $100k) once they settle down after traveling would be best off taking a mixed approach: going on RAP while traveling to take advantage of the low payments and interest subsidy, and then paying off their loans ASAP once they stop traveling.
Taking a look at these variables, you can choose which options may more closely align with your actual situation. Then, try to determine which plan would be most favorable for you.
Conclusion
I hope that this article will give you some insight into how to plan for your own student loan repayment. Based on the numbers, it seems that most healthcare travelers will be in the best shape over the long term on New IBR if eligible (loans after 2014), or if not eligible (loans before 2014), then just paying down the debt ASAP if only eligible for Old IBR and RAP– but there are a lot of variables to consider.
Since Whitney and I are aren’t eligible for New IBR, we’ll likely end up just paying off our loans later this year given the current options. But we will wait a little while to make sure there isn’t a change that would allow us to go on New IBR. Although it looks unlikely right now, I wouldn’t rule anything out with how many changes have already happened with student loans. If New IBR was an option for us, then we’d go on it and continue toward forgiveness since we already have about 8 years of qualifying payments. Although paying off our loans in full isn’t ideal, we really can’t complain. We’re both way ahead financially of where we would have been had we never gone the IDR route to begin with.
If you’re a traveler who plans to settle down into a normal paying perm job after a few years of traveling, and plans to have a family while saving for retirement, then it’s hard to make a case against New IBR if you’re eligible for it. Only having to make 20 years of payments vs 30 years of payments on RAP is a huge difference and means a lot less paid over the loan period.
If you’re a traveler who plans to stop traveling after a few years, start a business, and earn a lot of money, then RAP while traveling and then paying down the debt ASAP after you finish traveling is likely the lowest cost option.
If you’re a traveler who plans to travel for a long time while saving heavily, then only work part time/PRN when eventually settling down, then RAP really shines with the interest subsidy being very beneficial.
If you’re a traveler with a low student loan balance, then paying off the loans ASAP may be prudent and the least hassle.
Some people are very debt adverse, and even if it makes more sense mathematically to go on an IDR plan, they’d prefer to just get rid of their debt, and that’s understandable as well. Student loan debt repayment is basically a “choose your own adventure” where a lot of variables and psychological factors come into play. There’s no one size fits all answer for everyone, and sometimes even the best mathematical choice won’t be the right choice for you based on your life circumstances. But, assessing all your options and being well informed is vital.
If you aren’t sure what’s the best choice for you or want to double check your decision, I’d recommend creating an account at FitBux where they can help you assess your personal financial situation.
If you have questions about travel therapy or student loan repayment options for travel therapists, feel free to send us a message. We also have additional resources you can check out below!
If you’re interested in getting started as a travel therapist, check out our free Travel Therapy 101 Series and get connected with the best recruiters by filling out our Recruiter Recommendation form.
Related Articles:
- Is it Better to Pay Off Student Loans or Invest? (2018)
- Travel Therapist Student Loan Forgiveness (2022)
- SAVE Student Loan Repayment Plan for Travel Therapists (2023)
- Which Student Loan Repayment Plan is Best for the Average Travel Therapist? (2023)
Written by Jared Casazza, PT, DPT – Jared has been a traveling physical therapist since 2015. He has become an expert in the field of travel healthcare through his experience, research, and networking over nearly a decade.
