Understanding Student Loan Facts as a Student Loan Borrower.
Taking on student loan debt can feel overwhelming, which is why you may be looking for someone to explain student loans in more detail before making your decision. As you navigate private student loans vs. federal student loans, we hope this list of misconceptions—along with their associated student loan facts—puts you at ease and prepares you to choose the right plan for you.
The following misconceptions may be encountered by incoming college students, undergraduate students, graduate students and college graduates, so whatever stage you find yourself in, you have likely seen or believed some of the student loan misconceptions listed below.
While this seems like a good idea on the surface, interest rates can fool you. According to, depending on the student loan repayment plan, you could actually be paying more interest than other loan options based on the repayment terms.
Many college students don’t realize that student loan interest begins the moment you take out the loan, according to
While you are not required to start paying on your loans until 6 months after graduation, according to, for most types of student loans, by the time you start making payments, a significant amount of interest has already accrued, increasing your outstanding student loan debt. You can learn more about how much interest will accrue on your specific loans by following
One exception to this is for subsidized federal student loans, according to the, which do not accrue interest while you are enrolled in school at least part-time.
Starting to repay your loans—even if they’re small payments—while you are a college student can help you pay less interest over time, depending on the types of loans you are working to pay off.
Loans are a form of credit and your payment history for that has a big impact on your credit score—more specifically, your FICO score. According to the, you can boost your FICO score by making payments within your due date, or lower your score if you consistently miss payments or pay late.
Furthermore, your score can impact your ability to buy a house, apply for more student loans or utilize credit card debt in the future. Learn more about
If you take out multiple federal student loans, it may seem to make sense to consolidate them so you only have one loan payment. However, that’s not always the best choice.
When pursuing student loan consolidation, the loan servicer will create an average, weighted interest rate for the loan, according to the, which could mean you end up paying more interest over time.
Additionally, if one student loan included benefits like income-driven repayment plans and the other didn’t, you could lose access to those benefits, according to, depending on your loan consolidation terms.
Learn more about the
Private and federal student loans have distinct differences you should explore before making your decision. These differences include repayment plans, interest rates, eligibility requirements and more, which may sway you to choose one type of loan vs. another or provide opportunity to utilize both loan types to pay for your higher education.
This is a dangerous assumption about student loans and a common misconception.
When you consider how much money you take out in student loans, you should consider the earning potential of your chosen degree. Some career paths don’t pay as much as others, but the amount of money you have to pay for an undergraduate, bachelor’s degree is roughly the same at a given college regardless of major.and notice no distinctions are made by degree.
Furthermore, many students change majors in college, changing their earning potential in the process. According to the, about one-third of students enrolled in bachelor’s degree programs changed majors, compared with 28 percent enrolled in associate degree programs.
Becoming a student loan borrower should be done mindfully, especially as you consider your degree program.
If you are experiencing financial hardship, significant medical expenses or a job change and are unable to make your student loan payments, talk to your loan servicer. There may be alternative options to declaring bankruptcy, which should always be pursued as a last resort, as advised byBankruptcy can hurt your ability to apply for credit in the future and doesn’t always eliminate the requirement to pay off your student loans, as noted by the
Some alternative repayment options to consider before bankruptcy include:
You should only use these alternative repayment options if you are unable to make your monthly payments. Opting forcan result in a higher loan balance as interest accrues during that period of time, according to , with some exceptions.
When you refinance any type of loan, you are restructuring and updating your current loan terms, according to. This can sometimes be a good option if you are struggling to make your monthly student loan payments, as explained by , but it will lengthen your repayment period and increase your total loan amount, so it should not be your go-to solution to lower monthly payments.
While student loans can be a great resource and tool to funding your education, it is not your only option. Private, nonprofit and federal student aid in the form of grants and scholarships can be applied for every year you are attending college to lower your outstanding student loan debt. Whether you are trying to pay for a four-year degree or graduate school, there are plenty of options to choose from.