- There are important and significant differences between federal student loans and private student loans.
- Your credit score can be affected by student loans, but not always in the negative.
- To cancel your student loans, you don’t have to wait for President Biden.
- Find out more about Insider’s coverage of student loans here.
When it comes to student loans, it can be difficult to discern fact from fiction. There is so much information online that it can seem overwhelming. We will dispel ten myths about student loans and reveal the truth about student debt. Check out Consolidation Now.
1. A lower interest rate is always preferable.
Although interest rates are important to consider when you decide to get a student loan, they should not be the only thing that matters. Consider the length of your loan. This will affect how much you pay each month and the repayment options. These can include deferred payments or paying the entire balance while you are in school. . Although federal student loans may have higher interest rates than private loans at times, they provide greater protection for borrowers.
2. You should not pay loan repayments if you can’t afford them.
You don’t have the option to stop paying student loans if you are in financial trouble. Your credit score will be negatively affected if you default on past due payments.
Contact your federal loan officer to see if an income-based repayment plan is available. Income-based repayment plans consider your income and family size when calculating your monthly payments. Your payments could be as low as $ 0.
Federal and private lenders may offer loan forgiveness. For reasons such as job loss, financial hardship, or medical expenses, you can ask your duty agent for forbearance. A general loan forbearance may be granted up to 12 consecutive months. Remember that interest could continue to accrue even if you are not active.
You don’t have to apply separately for forbearance if you already have federal loans. COVID-19 allows you to forbear federal student loans up until January 31, 2022.
3. The basic principle of federal and private student loans is the same.
Private student loans don’t offer the same benefits and protections as federal student loans. Federal loans may allow you to be eligible for loan forgiveness programs or additional repayment options.
Private student loans require credit checks, which is not the case with unsubsidized or subsidized direct loans. You may be eligible for lower rates with private lenders, and you have the option to take out variable rate loans.
4. Your credit score is not affected by student loans
Credit cards and mortgage payments are two common types of debt that can affect your credit score. Student loans can also impact your credit score. Your student loan manager will report your payment history to credit bureaus. If you are late on payments, your credit score may be affected. Make sure to understand the terms of your loan and attach all documents to your loan manager.
5. Student loans will reduce your credit score automatically.
Your credit score is affected by your payment history. Your student loans will help you improve your credit score if you make regular and reliable payments. This is because lenders will see that you are a responsible borrower by seeing your consistent payments. Higher credit scores can help you qualify for higher rates on personal loans, auto loans, and mortgages.
6. It’s not worth paying student loans while you are still in school, during your grace periods, or while you forbear.
You don’t have the obligation to pay student loans until the grace period of six months has expired. However, it can help you save money over the long-term by paying down your student loans sooner as you’ll pay less. Overall interest. Private student loans and unsubsidized loans can start earning interest immediately after you take them out. Subsidized direct loans, however, will not start earning interest until your grace period has expired.
The COVID-19 Forbearance is available for Federal Student Loans until January 31, 2022. You can enjoy interest-free periods, and only pay your principal.
7. It is impossible to save money and pay off student loans simultaneously.
A budget can be created that reflects your financial priorities. You can reserve a portion of your salary to pay your loan payments, and another portion for savings. If you are eligible for an income-based repayment program, your monthly student loan payments will be lower. This can help you save money.
To reach your savings goals, you don’t have to save hundreds of bucks per month – just $ 10 is enough. Find out more about setting a budget.
8. Consolidating student loans is similar to refinancing.
Refinance is the process of restructuring your existing loan(s) and getting a newer one with better terms. Consolidating federal loans is not possible. However, you can refinance federal and private loans. Refinancing will get you a better rate than consolidation. Find out more about the differences in refinancing and consolidating here.
9. A student loan is the best option if you have to pay tuition.
Private scholarships and grants are available, as well as work-study programs. You may also ask your college for additional aid. Ask your college if you can accumulate scholarships and grants from private sources in addition to the aid provided by the college. Sometimes, a college may deduct any private assistance from the amount it grants or scholarships. Find out more about financial aid options.
10. Forgiveness of student loan debt is the only way the Biden administration can forgive student loans.
Although much of the discussion surrounding student loan forgiveness revolves around President Joe Biden’s campaign promise to pay off $ 10,000 in student debt, it may be worth looking into the forgiveness program if you work for the public sector. PSLF stands for public service loans. After at least 10 years service and qualifying payments, the PSLF will cancel the debts of graduates who work in the public sector. It doesn’t matter what job you have, as long as it is for a public-service employer. There is no limit on how much money can be forgiven.
It is crucial to understand the truth about student loans in order to make the best decisions regarding your debt. Before you fall for common myths, do your research.