We’re sure you’ll agree that the student life is tough. There’s the late nights, bloodshot eyes, and countless classes…not to mention the pressure from friends, family, and the world at large all demanding that you work out exactly what it is you’re going to do with your life, kid!
Oh, and did we mention that you have to pay for the privilege?
Now add to this already stomach-churning concoction the need to sift through the quagmire that is misinformation, confusion, and dare we say ‘fake news’ surrounding student loans, and it can all be too much. Especially for your bank account…
That’s where we come in! Before you start considering your post-education life, there are some myths that have taken on a life of their own that we need to debunk. We’ve debunked a few myths in the past, but there are even more mistakes and misconceptions out there that could cost you time and money if not set straight!
5 Myths About Student Loans
1. “I’m going to land a job soon, so repaying my loan will be easy!”
Optimism is a great show of character, but only to the point that it starts clouding your judgment: viewing the world through rose-tinted glasses could do you more harm than good. When it comes to student loans? It’s all about your future employment prospects.
It’s true, you do have every chance of landing your dream job once you graduate. That said, you also need to face the fact that the state of the jobs market, the economy, and even your life circumstances are often out of your control.
For every student that lands on their feet, there’s going to be another left to flounder for a while. That’s just how things go. This is why you should always be mindful of the amount of money you apply for when taking out any and all student loans.
In an ideal world, you’ll be able to repay your loans on time and within budget, but it’s almost always smarter to hope for the best and plan for the worst so you can minimize the debt you’ll have to repay as you start your life in earnest.
2. “Filing for bankruptcy will save me from my student loans”
This one’s more than just a bad idea, it’s also one of the biggest myths that somehow still regularly does the rounds. You see, student loans are very difficult to discharge during a bankruptcy proceeding, so any ideas of quickly and easily wiping your private or federal student loans had best be put on the backburner. There’s no guarantee it’ll happen.
In fact, most borrowers aren’t able to discharge loans under Chapter 7 or Chapter 13 bankruptcy.
While there are some edge cases where proving ‘undue hardship’ may see them wiped, you’re almost always better off working with lenders – or experts – to put together a repayment plan that suits you, especially if you’re struggling to make regular repayments.
3. “My credit score won’t be affected by income-based repayments”
If you’re on a lower income or are looking to lower your monthly repayments, Income Based Repayments (IBR) have always been a popular option. With one key caveat: lower repayments are great, but you need to ensure you’re covering the cost of your interest, which is still charged depending on your credit rating and loan approval.
If you don’t, you could quickly see the amount you owe rising, not falling, as unpaid interest accrues on your debt.
Carrying debt like this and making late payments negatively impacts your credit score, which in turn can make it difficult to get a good rate or even just gain approval at all, whether you’re planning a wedding or applying for a mortgage. So if you’re going to make the most of income-based repayments, at least ensure you’re capable of meeting them!
4. “Refinancing is always my best option”
Refinancing your student loans is a great way to extend the repayment period, land a lower interest rate, or both! It’s also one of the easiest methods for lightening the load, saving yourself some money, and making your repayments easier to manage.
While it’s almost always a good idea to refinance private student loans, the same can’t be said of federal student loans. Federal student loans that are refinanced are converted into private student loans, which are no longer eligible for certain income-based repayment plans like those mentioned above.
Repayment plans like these make your student debts that much easier to manage and repay, something a regular financial institution may not be as ready, willing, or able to do. So while refinancing can save you time and money, refinancing the wrong loans could lead to the exact opposite. Chat with an expert. Weigh up the pros and cons. And think long and hard before signing on the dotted refinancing line.
5. “My student loans will be with me for life”
The points we’ve covered so far could leave you feeling a little pessimistic, so let’s end things on an optimistic high note and debunk one of the biggest myths of all: no, your student loans won’t be with you for the rest of your life.
We know what you’re thinking: ‘It sure doesn’t feel that way’. You’re starting life weighed down by debts, a job, as well as the day-to-day struggle of life itself. It’s only normal to feel a little overwhelmed, but you do have options.
Income based repayment (IBR), debt consolidation, and refinancing are all viable ways to go about reducing your out of pocket expenses, while also ensuring you’re best able to tackle your student loans in a way that’s specially tailored to your exact financial situation.
There are countless success stories, guides, as well as tips and tricks out there that make the process that much easier. You’re not alone in this journey, so you shouldn’t have to feel like you are! The usual extras like taking on additional work, introducing some money-making side hustles, or creating a better budget are also great ways to drum up more cash you can use to pay off your loans quicker and smarter.
Debunk the myths, and make a better start!
Starting your post-study life is difficult enough without common myths getting in the way and muddying the waters. By debunking these common myths and getting the facts straight, you’ll ensure you’re in the best financial position possible to repay your student loans sooner rather than later.