If you’re planning on taking out student loans or have already done so to achieve your career aspirations (maybe you want to open a business that designs cool car wraps or create a game-changing fintech app), then here are five persistent myths that you need to stop believing right now.
Otherwise, you could find yourself swimming or sinking in massive debt for years after you graduate.
Myth: It’s always smart to consolidate your student loans.
Fact: There is a big and important difference between consolidating student loans and re-financing students loan. With the former, you are essentially combining debt and the interest rate will be equal to a weighted average of all of the underlying student loans (rounded up to the nearest 1/8th of a percent).
With the latter, you are effectively lowering the interest rate — and hence, reducing the total cost of borrowing. You may also be able to modify the terms of your student loans, which could be quite beneficial.
Myth: If you can’t pay back your student loans, then you can take advantage of student loan forgiveness.
Fact: First, student loan forgiveness is only available for federal student loans. Second, you must meet specific income requirements to qualify. So yes, you might be able to take advantage of this program — but don’t see acceptance as a foregone conclusion.
Myth: If you’re struggling to make ends meet, then it’s OK to skip a student loan payment.
Fact: Skipping a payment is 100% counterproductive. In addition to still owing the money, you could damage your credit rating — which will make it harder and more expensive for you to borrow funds in the future.
It may also impact your ability to rent an apartment or get a job. If you are having a tough time meeting your student loan obligations, then contact your student loan servicer and see what options are available.
Myth: If you file for bankruptcy, then your student loan obligation will be wiped out along with your other debts.
Fact: The bankruptcy court will only discharge your student loan obligation if you can prove that paying the debt will impose an extreme financial hardship on you and your dependents. What’s more, applying for this relief is not automatic. In addition to filing for bankruptcy, you must petition the court and pass a means test.
Myth: Your student loan servicer is your advocate.
Fact: Your student loan servicer is simply that: your student loan servicer. They are not your advisor, and are under no fiduciary obligation to ensure that you make smart, sound decisions. So yes, you can (and should) consult them for factual information, and (as noted above) if you cannot make one or more payments.
But no, you shouldn’t depend on them to steer you in the right direction. In early 2018, the U.S. Consumer Financial Protection Bureau filed a lawsuit against Navient Corp., the nation’s largest student loan servicer, accusing it of “systematically and illegally failing borrowers at every stage of repayment.”