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Money: Student Loan Myths — Revealed


Are you entangled in student loan that is drowning you? Are you struggling to pay it off and getting frustrated about the fact? If so, you’re not alone.

Millions of Americans are buried in student loan debt with recent data suggesting that an ever increasing 70% of college grads in 2014 have student loans which is almost 50% greater 20 years ago.

The average amount of debt for undergraduates is now over $33,000, while borrowers with graduate and professional degrees have debt loads closer to the six-figure range.

The fact is, there is over $1 trillion dollars in student loan payables in the U.S., and debtors who have recently graduated only to be a part of a tough job market and little help, the burden of student loan debt could be of great discomfort.

It doesn’t help that there are so many myths surrounding student loan debt programs and repayment options.

So, before you fall for one of these myths, educate yourself.

  1. Forgiving student loan debt would help stimulate the economy:

People who want all student loan debt forgiven argue that getting rid of monthly loan payments would lead to increased consumer spending, thereby providing a quick boost to the struggling U.S. economy. However, only about 40 percent of all outstanding student loan debt is actively being repaid.

  1. Revisiting your student loan program isn’t worthy:

There are several other repayment plans apart from standard repayment plans such as the extended or graduate repayment plan which allow borrowers to extend their time period of repayment and lower their monthly payments. Sticking to a specific repayment plan would cost you more at the time of final analysis.

  1. Federal loans can’t be refinanced:

It’s no surprise that people generally think that federal loans can’t be refinanced unless a law is passed.

It is true somewhat that federal loans are not that easier to refinance but there are some private lenders who refinance private and federal loans both.

In fact originally SoFi and other private lenders refinanced majority of federal loans.

  1. All education debt is a good debt:

Financing education is through debt is a good future investment but too much bulk is not a great idea. There are so many undergrads who have abandoned their careers because of having too much debt.

An ideal situation would be that the expected salary of a borrower in future should be much greater than monthly loan installment which is generally not the case worsening the situation.

  1. Federal loans are always cheaper than private loans:

This is usually true for undergrads but for those who opt for Direct PLUS loans to cover the cost of graduation and other professional degrees this is not the case.

One thing that needs to be taken accounted for is the fact that federal loans are given off at the same rate which has recently gone up to 7.21% where as the private lenders look at your history and your credit score and other related financial information.

As a result, you can get away with lower interest rates than federal.

  1. You always have to pay back your student loan debt:

Most student loan borrowers don’t take advantage of: Student Loan Forgiveness Programs. These are programs designed to cut your student loan debt – for free.

And it’s been estimated that roughly 50% of borrowers can qualify for some type of student loan forgiveness program.

  1. You have to pay someone to get help in repaying :

If you are already struggling in paying your debt, hiring an advisor or an agency in helping you negotiate the loan would not be helpful. Look for the free resources that you can use for help.

   8. Declaring bankruptcy would make your loans go away:

Neither federal nor private loans can be discharged through bankruptcy unless the person signifies to the court that a minimum standard of living is not possible for him to maintain which would result in seizure of assets and darken history so it is advisable to avoid such a situation.

  1. Lowered interest rates through refinancing are of no significant difference:

Let us talk in numbers. If you have a $100,000 in loan at a 6.8% interest rate you will end up paying more than $38K on a 10-year standard repayment plan but if you qualify yourself to refinance that loan at a lower interest rate , say 4.74%, from a private lending agency this figure will go nowhere but down.

  1. Government isn’t that flexible regarding student loans:

When lenders send out their first billing statements, borrowers are always put on the Standard Repayment Plan. This is a simple 10-year repayment plan that has flat monthly payments. However, that may not work for you.

There are many ways that you can repay you loan, and there is always one that will fit your budget.

In fact, with certain types of student loans, you can even get student loan forgiveness under certain repayment plans if you simply can’t afford it.

  1. Poor students can no longer afford university:

There is a general air of disbelief among the students who belong to a low-income background and they tend to think that they won’t be able to go to university.

But that certainly is not the case as there are several universities who charge as much as $9,000 a year as long as they start their financial support programs in the university.

  1. Your rest of life will be in debt:

It is a very common perception that student loans stay for life and a person drowns in debt till his death once he is taken it but that certainly is not the case.

There is a cut-off point of 30 years, whether you have taken $100 or $100,000 it will be wiped out after 30 years irrespective of how much was the repayment.

  1. Student loans have greater impact on credit scores:

Student debt does not affect your credit score or credit report directly unless you opt for another kind of loan and you are asked about it and if they do take your student loan into consideration that would only be to estimate your net earnings resulting in you coming out better off.

  1. Repayment terms never change:

You might be thinking that you have signed a contract so the terms never change, but that certainly is not the case. Government can at any point alter the terms of the federal loans and you can even ask for refinancing upon reasonable grounds.

  1. You shouldn’t refinance federal loans with a private lender:

Federal loans are beneficial but for those who already have solid income base or ones who have primarily private sector earnings than advantages such as PAYE (pay as you earn) and Public service and Teacher Loan Forgiveness will be of no use.

If you’re concerned with your future financial status it is worth looking for some private lenders who offer forbearance options

 


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Robert D. Cobb
Founder, Publisher and CEO of INSCMagazine. Works have appeared and featured in places such as Forbes, Huffington Post, ESPN and NBC Sports to name a few. Follow me on Twitter at @RobCobb_INSC, email me at [email protected]

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