As federal student loan borrowers consider their repayment options in 2026, confusion over the income-driven repayment plan has increased. Data from loan servicers shows backlogs exist, but the reality is much different for borrowers at this moment. The payment plan processing backlog is usually inflated and outdated due to applications from the past year.
Persistent myths that do not reflect how the system actually works today, and what borrowers should do. The result is that many widely held assumptions about leaving a savings plan are simply wrong – and may cost you money!
Here are three of the most common myths and what borrowers should understand before making a decision.
Myth 1: Payment plan applications to leave savings take months
Borrowers often hear that changing repayment plans can drag on for weeks or even months, leaving loans in limbo and payments uncertain. This fear is understandable, especially in light of case reports issued in recent months.
reality: For most borrowers, it requires switching from a SAVE plan Three to seven business days When the application is completed correctly and submitted electronically.
Most of the backlog we are currently seeing is from orders placed before April 2025.
However, there are delays for borrowers uploading pay slips or documents through the online system. Paperwork uploads require manual processing. However, even our readers have reported a deadline of approximately three weeks to submit replacement documents.
Key takeaways: Processing time depends less on the plan change itself and more on how the application is submitted. Electronic applications that bind your tax return to the IRS remain the quickest path.
Myth 2: You have to consolidate your loans so you can save
Another common belief is that borrowers should consolidate their federal loans before switching from savings.
reality:
Uniformity is not required To leave a conservation plan.
Borrowers with Direct Loans can move from a SAVE plan to another qualified income-based plan, such as IBR or PAYE (for those who still qualify), without consolidating at all.
Consolidation is only necessary in limited cases, such as when borrowers have unconsolidated original loans. However, these borrowers will not be eligible for the savings anyway!
For borrowers currently enrolled in the SAVE program, switching plans is a paper-based decision and does not require loan consolidation.
Myth 3: Interest doubles when you leave savings
Perhaps the most troubling myth is the belief that switching from saving would cause unpaid interest to be reinvested immediately, permanently increasing the loan balance.
reality: Leave save It does not lead to capitalization of interest.
Capitalization of interest occurs in only three main cases:
- When the borrower leaves Postponing school
- When the borrower Unites Their loans
- When the borrower leaves IBR (Income Based Repayment) He plans
Switching between most income-based repayment plans, including exiting savings, does not capitalize interest. Any unpaid interest generally remains separate from the principal balance unless one of the specified capitalization events occurs.
This is important because capitalized interest increases the amount by which future interest accrues, raising costs in the long run. The misconception that a plan change alone results in capitalization has discouraged borrowers from exploring options that may better fit their finances.
What should borrowers in savings do next
Borrowers who remain in SAVE should not assume that this forbearance will continue beyond the next few months. The plan was blocked by the courts and officially ended through legislation. Its long-term future is settled.
Waiting to change payment plans can be expensive. Income-based payments are calculated using either your most recent tax return or current income and household information at the time of enrollment. Delaying even a few months may increase your payment Simply because you are using 2025 income versus 2024 income.
Borrowers will eventually be moved out of the SAVE program, but this process is designed to provide administrative convenience for the government, not individuals. Now those who act retain greater control over their payment terms.
Waiting for the government’s decision may be safer, but it may not be in the borrower’s financial best interest.
