FEIE Student Loan Payment: Your New RAP Plan in 2026

Your FEIE student loan payment changed this year, whether you noticed or not. The Repayment Assistance Plan launched on July 1, 2026. It calculates payments off your adjusted gross income, not the old discretionary-income formula. That shift matters if you claim the Foreign Earned Income Exclusion, because FEIE can push your reported AGI toward zero.

This guide walks through what changed, how RAP calculates a payment, and where the FEIE interaction actually helps. It’s based on the Department of Education’s own program details and IRS guidance, cross-checked against federal loan servicer explainers. Current as of this writing in late August 2026.

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What Changed on July 1, 2026

A federal court vacated the SAVE plan in March 2026. The Department of Education used that ruling to roll out a broader overhaul. Two new plans, the Repayment Assistance Plan and the Tiered Standard Plan, took effect on July 1. They replaced the old lineup of income-driven options for most new activity. PAYE and ICR stopped accepting new enrollees the same day, and both are scheduled to sunset entirely by July 2028.

Income-Based Repayment, or IBR, is the one legacy plan that survives long-term. It’s generally unavailable, though, if you take out or consolidate a new federal loan on or after July 1, 2026. In effect, borrowers now choose between two live income-driven options: RAP for anyone eligible going forward, or IBR if you already qualify. Both use your reported income to set the payment. That’s exactly where FEIE enters the picture.

How RAP Actually Calculates Your Payment

RAP sets your monthly payment as a percentage of annual income, between 1% and 10% depending on how much you earn, divided by twelve. Each dependent you claim on your federal tax return knocks $50 off the monthly amount. The plan won’t drop your payment below $10 a month, though, even if your income-based figure comes out lower.

RAP also includes two protections older plans didn’t have. If your on-time payment doesn’t cover the month’s full interest charge, the government waives the remainder instead of letting it capitalize. If your payment reduces the principal by less than $50, the government contributes the difference, up to $50, so the balance still moves down. Forgiveness under RAP arrives after 30 years of qualifying payments, regardless of degree level.

Plan	Payment basis	Status as of August 2026
RAP	1%–10% of AGI, minus $50/dependent, $10 minimum	Live since July 1, 2026; default for new IDR borrowers
IBR	10% or 15% of discretionary income (AGI minus 150% of poverty line)	Survives long-term, but closed to new/consolidated loans after July 1, 2026
SAVE	Discretionary income formula	Vacated by court order, March 2026; borrowers being transitioned out
PAYE / ICR	Discretionary income formula	Closed to new enrollees; full sunset by July 2028

Where FEIE Fits In

The Foreign Earned Income Exclusion lets qualifying Americans abroad exclude up to $132,900 of foreign-earned income from federal tax for 2026. That’s the IRS’s own inflation-adjusted figure. Both RAP and IBR calculate your payment from AGI, and FEIE reduces AGI directly on your tax return. Excluding your full income can shrink your reported income for loan purposes, even though your real earnings haven’t dropped at all.

Take a freelancer earning $70,000 abroad who qualifies for the full exclusion. After FEIE, they could report close to $0 in AGI, assuming no other taxable income. Under RAP, that puts their payment at the $10 monthly floor rather than a percentage of actual earnings. Under IBR, a very low AGI can similarly push the discretionary-income calculation to zero. That can mean a $0 monthly payment.

What FEIE Doesn’t Erase

A few catches matter here. First, FEIE only excludes earned income from income tax. It doesn’t touch self-employment tax. Freelancers still owe that separately, regardless of how low their loan payment gets. Our self-employment tax guide covers what FEIE does and doesn’t shield you from.

Second, a $10-a-month payment for years still counts toward RAP’s 30-year forgiveness clock. The forgiven balance at the end may be treated as taxable income under current law, though, so a low payment now isn’t necessarily free money later. Third, you still have to actually qualify for FEIE under the bona fide residence or physical presence test. See our FEIE physical presence test guide for how the 330-day count works. Falling short resets your AGI to a much higher number.

Finally, RAP requires an annual income recertification. A plan built around this year’s FEIE exclusion needs re-verifying every single year. Any year you don’t qualify for the full exclusion, your payment resets upward to match.

A Simple Walkthrough

Say you’re a single freelancer with no dependents, $65,000 in self-employment income earned entirely abroad, and you pass the physical presence test with 330+ qualifying days. Your FEIE exclusion covers the full $65,000, since it’s under the $132,900 cap for 2026. Because FEIE excludes that full amount from income, and you have no other taxable income, your AGI for loan purposes lands near $0 before any further deductions even apply.

Under RAP, that AGI produces a calculated payment below $10, so the plan’s floor kicks in and you pay $10 a month. Your self-employment tax bill, separately, still applies to the full $65,000 in net earnings. Recertify next year, and if you spend less time abroad and lose full FEIE eligibility, expect the RAP payment to rise substantially.

Who Should Actually Look Into a Lower FEIE Student Loan Payment

This is worth a closer look if you hold federal Direct Loans, qualify or expect to qualify for full FEIE, and haven’t recertified your income-driven plan since July 2026. It’s less useful if your loans are private, since RAP and IBR only apply to federal Direct Loans. It’s also less useful if your income abroad regularly exceeds the FEIE cap, since the exclusion won’t zero out your AGI in that case.

Federal loan rules and tax law can both change with little notice. Individual circumstances vary by loan type, filing status, and consolidation history. Confirm your specific numbers directly on StudentAid.gov or with a tax preparer before assuming a $10 payment applies to you.

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FAQ

Does FEIE actually reduce my student loan payment?

It can, indirectly. Both RAP and IBR calculate payments from your AGI. FEIE lowers AGI by excluding qualifying foreign-earned income, so a full exclusion can significantly shrink, or even zero out, your calculated payment.

What’s the lowest my RAP payment can go?

RAP has a $10-a-month floor, even if your income-based calculation produces a lower number. IBR doesn’t have that same floor, and can calculate down to $0 for a sufficiently low AGI.

Do I still owe self-employment tax if my loan payment drops to $10?

Yes. FEIE excludes foreign-earned income from income tax, but self-employment tax is calculated separately. It isn’t reduced by the exclusion, so freelancers still owe it regardless of their loan payment amount.