Dealing with student loans can be overwhelming. And the many loan myths surrounding student loans only add to the stress and overwhelm.
A lot of the fear about student loans stems from misconceptions that surround them. As a rule, when in doubt, always call your student loan servicer and ask. They are the most reliable source when you want to clear up any confusion about student loans.
In the meantime, here are some of the more common student loan myths and facts.
1. I Don’t Need to Pay My Loans Until After I Graduate
The payments on student loans start six months after you graduate. But that doesn’t mean you should ignore them until that time. The truth of the matter is it can be beneficial to start paying off your loans while still in school.
Many student loans offer a grace period of six months after you graduate, drop below half-time student status, or drop out. This is for you to get settled into a job and secure yourself financially before you start making payments. However, interest begins accruing from the time the funds are disbursed. By the time payments start, you will have to pay off a much larger debt than what you took on. Making some payments, even small ones, when you are still in school can help to lower the interest that accrues by the time you graduate.
Tip: When making early payments, you must request the lender to apply the payments to the principal and not the interest. The lower principal amount will help to lower the amount of interest that accrues.
2. I Should Pay My Student Loans Before Everything Else
It’s only natural to want to pay off those student loans as quickly as possible. Soon after you graduate, student loans are probably the biggest debt you have. You can’t wait to chip away at that debt so it doesn’t feel as overwhelming. But paying your student loans before everything else may not be the right decision.
It’s important to first compare interest rates on all your debts. And make sure that you pay off the highest-interest debt first. Student loans tend to have interest rates that are lower than most other types of loans.
Take credit cards for example. Credit cards have notoriously high interest rates. Even if your credit card bill is relatively smaller, you should pay it off first as it would attract a higher interest rate. It’s all about balance.
If finances are limited and you can’t afford to make all loan payments, ask yourself which debt attracts higher interest if you wait.
Tip: If you can’t afford to cover all payments, make sure to pay off those with the highest interest rates first. Keeping track of what your interest rates will help. You’ll generally find that credit cards have the highest interest rates.
3. Loan Consolidation Is Always Helpful
If you have multiple federal loans, it might seem like a good idea to consolidate them so you only pay one bill per month.
When you consolidate your loans, your loan servicer will calculate a weighted average of your interest rates – and then round it up. This will be your new interest rate on the consolidated loan. Depending on your payment plan, you may actually end up paying more than what you would have if you had kept the loans separate. In addition, you may lose access to benefits such as income-payment plans and loan forgiveness. Make sure to find out what interest you’ll pay on the consolidated loan before choosing this option.
Another downside of consolidating federal student loans is that you’ll lose credit for any payments you’ve made towards Public Service Loan Forgiveness. If you’re pursuing Public Student Loan Forgiveness, this may not be the right option for you.
Tip: It’s best to keep your loans separate if you plan to pay off your higher interest loans first or if you’re pursuing Public Service Loan Forgiveness.
4. I Have To Pay Back My Loans Completely
While this true for many people, it never hurts to see if you qualify for a forgiveness program. The Public Service Loan Forgiveness Program is a good example. If you work full-time at a qualified job in the government, after ten years of successful loan payments your loans can be forgiven. Teacher and Disability Forgiveness is also available, and other types of forgiveness may be coming.
Tip: Find out the criteria for the various federal loan forgiveness programs. You could get part of your loan forgiven if you comply with all the terms and conditions of any one of the programs.
5. I Can’t Adjust My Repayment Amount
Definitely false. You can adjust your repayment amount for both, federal and private student loans.
While everyone’s initial bill is set to the standard ten-year repayment plan, for federal student loans, you can adjust that. Graduated, Extended, Income-Based, and Pay-As-You-Earn are all viable options that you can chose from. All of these options peg your monthly repayment amounts to a percentage of your monthly income so they are always affordable. When extending how long you plan to take to repay your loans, it’s important to remember that you want to stay ahead of the interest rate. Otherwise, you might end up owing more than when you started!
Federal Student Aid is a great site that lays out the differences between repayment plans.
The repayment amount on private student loans can be adjusted by refinancing. To refinance, you exchange your current loans for a new loan with different terms. You can choose the monthly repayment amounts on your new loan. A higher monthly repayment amount will reduce the total interest that accrues and help you clear your debt faster. A lower monthly repayment amount will extend the loan term but make the payments more affordable.
Tip: You can adjust the repayment amounts on both federal and private student loans to suit your financial circumstances. Speak to your lender if you’re having problems with your loan payments. They will help you find a solution rather than having to deal with late payments or default.
6. Student Loans Don’t Affect My Credit Score
Yes, they do. Loans are a form of credit and credit payment history has the biggest impact on your credit score. Every payment that you make within the due date helps to boost your credit score by a few points. On the other hand, missing a payment or paying late will have a negative impact on your credit score.
A poor credit score can affect your eligibility to apply for more loans or a new credit card. It may even affect your employability and your ability to rent an apartment.
Tip: Have a system in place to ensure that you make every loan payment on time before the due date. This one thing will help to build a strong credit score slowly and consistently. If you have a difficult time remembering payment due dates, set up auto pay. This deducts the repayment amount from your bank account and transfers it directly to the lender on the set date. As a rewards, lenders also offer an interest rate discount when you set up autopay, so it’s a double-win for you.
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| Lender | Rates (APR) | Eligibility | |
|---|---|---|---|
 |
5.50%-16.12%* Variable
3.99%-15.61%* Fixed
|
Undergraduate and Graduate
|
VISIT CITIZENS |
 |
5.54% - 15.70% Variable
3.99% - 15.49% Fixed
|
Undergraduate and Graduate
|
VISIT SALLIE MAE |
|
|
4.63% - 17.99% Variable
3.49% - 17.99% Fixed
|
Undergraduate and Graduate
|
VISIT CREDIBLE |
 |
6.00% - 13.75% Variable
3.99% - 13.75% Fixed
|
Undergraduate and Graduate
|
VISIT LENDKEY |
 |
5.66% - 14.72% Variable
3.69% - 14.56% Fixed
|
Undergraduate and Graduate
|
VISIT ASCENT |
 |
3.70% - 8.75% Fixed
|
Undergraduate and Graduate
|
VISIT ISL |
 |
5.62% - 16.85% Variable
3.69% - 16.49% Fixed
|
Undergraduate and Graduate
|
VISIT EARNEST |
 |
5.00% - 14.22% Variable
3.69% - 14.22% Fixed
|
Undergraduate and Graduate
|
VISIT ELFI |
