Many Student Loan Holders Overpay as Relief Options Remain Largely Unknown

Thousands of federal student loan borrowers continue to shell out more than they have to because they are unaware of the U.S. Department of Education’s income-driven repayment plans and loan-forgiveness programs, according to recent survey data and financial advisors.

The Institute for College Access & Success (TICAS) surveyed more than 1,000 self-identified federal student loan borrowers in September. Its findings show that 15% of respondents had heard “nothing at all” about income-driven repayment (IDR) plans, which peg monthly bills to earnings. Another 23% did not know about Public Service Loan Forgiveness (PSLF), and 47% were unfamiliar with the program that wipes out loans for certain borrowers with severe disabilities.

“Many borrowers end up paying more than necessary simply because they aren’t aware of the full range of relief options,” said certified financial planner K.C. Smith, managing associate at Henssler Financial in Kennesaw, Georgia. Smith noted that an appropriate IDR plan can cut payments to a fraction of current levels and, for some lower-income borrowers, reduce them to zero dollars.

Strains on Repayment Rise

The knowledge gap comes at a time when more than 5 million borrowers are already in default, a figure federal officials say could double to roughly 10 million. Pressures include a softer labor market and a series of policy changes that have complicated the repayment landscape.

Michele Zampini, associate vice president of federal policy and advocacy at TICAS, said an IDR plan “is often the only way a borrower can afford to stay out of default.” Under these plans, any remaining balance is forgiven after 20 or 25 years, depending on the program and loan type.

Current Income-Driven Options

Congress first authorized income-driven repayment in the 1990s. Although the Biden administration’s Saving on a Valuable Education (SAVE) plan was recently blocked in court and some other IDR options are being phased out, at least one alternative remains available to new applicants: Income-Based Repayment (IBR).

IBR caps monthly payments at 10% of a borrower’s discretionary income—15% for certain older loans—and offers forgiveness after 20 or 25 years. Smith advises borrowers to compare projected payments under IBR with their current standard plan to determine potential savings.

Beginning July 1, 2026, individuals who take out new federal loans will have access to only one IDR pathway, the Repayment Assistance Plan (RAP). Under RAP, required monthly payments range from 1% to 10% of earnings, with a minimum of $10. The plan adjusts obligations upward as income rises.

Borrowers can submit IDR applications online through StudentAid.gov, where they also are required to recertify income each year to maintain eligibility.

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Forgiveness Programs Remain in Place

Despite court rulings and regulatory shifts, a roster of federal forgiveness avenues is still active:

• Public Service Loan Forgiveness (PSLF): Federal loans can be discharged after 120 qualifying, on-time payments—typically 10 years—for full-time employees of government agencies or eligible not-for-profit organizations.
• Teacher Loan Forgiveness (TLF): Educators who teach full-time for five consecutive academic years in designated low-income schools or educational service agencies may have up to $17,500 of their loans forgiven.
• Total and Permanent Disability Discharge (TPD): Borrowers diagnosed with a qualifying disability can apply to have their remaining balance canceled.
• Closed School Discharge: Students whose institution shuts down while they are enrolled, or shortly after they withdraw, may qualify for full cancellation of federal loans.

In addition to federal initiatives, state-based relief opportunities exist. The Institute of Student Loan Advisors maintains a database of programs that target specific professions, regional shortages, or public-interest roles.

Steps Borrowers Can Take Now

Financial planners recommend a systematic review of repayment and forgiveness options:

1. Log into the Federal Student Aid portal to verify loan types, interest rates, and current servicer information.
2. Use the Education Department’s loan simulator to estimate payments under IBR, RAP, and the standard ten-year plan.
3. Check employment history against PSLF or TLF requirements, and gather documentation of qualifying payments.
4. Review eligibility for TPD or closed-school discharge if applicable medical or institutional events have occurred.
5. Enroll or recertify in the selected IDR plan before the annual deadline to avoid payment increases.

Borrowers already in default should explore rehabilitation or consolidation options to regain eligibility for income-based plans. Failure to act may lead to wage garnishment, tax-refund interception, and damaged credit, experts warn.

With an estimated $1.6 trillion in outstanding federal student debt, the stakes remain high. Advocates argue that expanded outreach and simplified enrollment could prevent millions of borrowers from slipping further behind—savings that begin with understanding the relief mechanisms still on the table.

Crédito da imagem: Anastasiia Krivenok | Moment | Getty Images