4 Common Student Loan Myths Exposed

books-927394_1920Everything you read and hear about student loans is not true. Many students graduate with loans, only to encounter a rude awakening when they realize that they know very little about their lender and the student loan repayment process.

As a somewhat recent college graduate, I learned about some myths the hard way but made sure I did my research and reached out to my lender with questions and concerns early on. I encourage you to do the same and check out these 4 common student loan myths that you shouldn’t fall for.

1. After Your 6 Month Grace Period is Up, Interest Will Begin Accumulating on Your Loan Balance

This is a myth a lot of recent college grads believe (self-included). After you graduate, your grace period is a time where you are not required to make payments on your students loans with the intent that you will use the interim time to secure a stable job so you can pay back your loans.

Just because you aren’t required to pay back your loans during the grace period, this doesn’t mean that interest isn’t being accrued during this time. If you have subsidized Federal loans, the government may take care of interest accrued during your grace period but for Federal unsubsidized loans and private loans, the interest accrued during the grace period is your responsibility.

The interest accrued during your grace period will capitalize if not paid by the end of the 6 months and be added to your principle balance when you start making regular payments. As result of capitalization, you may be paying interest on your interest when you start making regular payments after your grace period. Knowing this makes the 6-month grace period seem less like an actual break.

It’s best to make payments on your loans during college if you can, and continue contributing something as soon as you graduate as well. You can track your student loan balance during college by visiting the National Student Loan Data System If you have private loans, you should be able to see how much you’ve borrowed by checking your credit report at annualcreditreport.com

2. Not Paying Back Your Loans Won’t Hurt Your Credit

Not paying back your loans, missing a payment or making late payments can have a significant negative impact on your credit score. Since student loans are considered ‘good debt’ they won’t have much of a negative impact on your score unless you start missing payments when payments are due.

Otherwise, Student loan debt is not much different or better than regular debt, so you should always be serious about paying your loans off on time in order to protect your credit and perhaps even boost your score.

Maintaining a good credit score is important especially if you will need a mortgage one day with a low interest rate.

3. Anyone Can Qualify for Student Loan Forgiveness after a Certain Number of Years

This myth is tricky. A lot of people will qualify for student loan forgiveness while a lot of people won’t. Student loan forgiveness is not a quick process. To find out if you qualify, you need to meet certain requirements

The student loan forgiveness program is eligible to people who have made 120 qualifying payments under a qualifying repayment plan while working full-time for a qualifying employer. That’s a lot of use of the word ‘qualifying.’

Basically, you need to be a teacher, working for the government or working for certain non-profit agencies who has made payments for at least 10 years under one of the qualifying Federal loan repayment plans. Student loan forgiveness eligibility depends highly on what you studied and what field you work in. If you have an ineligible employer, you probably won’t make the cut.

4. The Terms of Your Student Loans Can Not be Changed

Once you choose a student loan repayment plan, by no means are you locked into those terms forever. In extreme situations, you can request deferment or forbearance for your loans if you become unable to make payments.

For Federal loans you can see if you qualify for income-driven payments that will be adjusted based on how much you make. You can also refinance or consolidate your loans with another company to negotiate a lower interest rate or lower monthly payment.

If student loans are becoming a struggle for you and your credit has increased as a result of the payments you’ve made so far, it might be a good idea to see if you can lighten the financial burden by refinancing or consolidating your loans.

Do you have student loans or have you recently paid your loans off? What are some myths you’ve heard about student loans before?

Posted in: Credit and Debt

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