10 myths about student loans

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  • There are significant and important differences between federal and private student loans.
  • Student loans can affect your credit score, but not always negatively.
  • You don’t have to wait for the Biden administration to get a student loan forgiveness.
  • Learn more about Insider student loan coverage here.

When it comes to student loans, it is difficult to separate fact from fiction – there is a lot of conflicting information on the Internet and analyzing the details can seem like a daunting task. We will debunk ten common student loan myths and tell you the truth about your student debt.

1. A lower interest rate is always better.

While you should keep the interest rates in mind when deciding on a student loan, they don’t have to be the end. You should also consider the length of the loan, which affects how much you pay per month, and repayment options, which can range from deferred payments to paying the full balance while you are in school. Federal student loans can sometimes carry higher interest rates than private loansbut they provide better protection for borrowers.

2. If you cannot afford the loan payments, you should stop paying them until you are financially able to.

If you are in financial difficulty and can no longer afford the monthly student loan expenses, your only recourse is not to just stop paying. If you do this, your late payments will most likely negatively impact your credit score.

Instead, contact your Federal Loan Service Agent and see if you are eligible for an income-driven repayment plan. Income-driven repayment plans Consider your specific income and family size when calculating your monthly payments, and depending on your situation, your payments could be as low as $ 0 per month.

You may also be eligible for a loan deferral from both federal and private lenders. You can ask for a deferral from service personnel for reasons including financial hardship, medical expenses, and job changes. General cancellation of the loan can last up to 12 months at a time. Be aware that interest may continue to accumulate during the abstinence period.

If you currently have federal loans, you do not need to separately request a waiver as the COVID-19 waiver for federal student loans is valid until January 31, 2022.

3. Private and federal student loans are basically the same.

Private student loans do not have the same protection and benefits as federal student loans. WITH federal loansYou may be eligible for loan forgiveness programs and additional repayment options.

Private student loans also require credit checkwhile direct subsidized and unsubsidized loans are not. On the other hand, you can get lower rates from private lenders and be able to get variable rate loans.

4. Student loans do not affect your credit score.

You can think of credit cards and mortgage payments as common forms of debt that affect your credit rating… However, student loans also affect your credit score. Student loan services will report your payments – or lack thereof – to the credit bureaus, and if you delay payments, your credit score could be tainted. Make sure you understand the repayment terms and upload all relevant documents with your loan provider.

5. Having a student loan means your credit rating will automatically be lower.

Your payment history makes up a large part of your credit score. If you make consistent and reliable payments on your loans, your student loans can actually improve your credit rating because your stable payments will prove to lenders that you are a reliable borrower. A higher credit rating may qualify you for higher rates on personal loans, car loans and mortgage

6. It is not worth paying on a student loan while studying, during a grace period, or during abstinence.

Although you are not required to make payments before the six-month grace period on your student loans expires, you can save money in the long run by paying off your student loans earlier because you will generally pay less interest. Private student loans and Unsubsidized direct loans will begin to accrue interest as soon as you collect it, and Subsidized direct loans will not begin to accrue interest until the grace period expires.

The COVID-19 waiver for federal student loans is valid until January 31, 2022. You can take advantage of the interest-free periods and make payments that go exclusively towards your principal.

7. You cannot save and pay off your student loans at the same time.

You can create a budget that includes both of your financial priorities by setting aside part of your paycheck to pay off the loan and part to your savings account. You can make smaller monthly payments on your student loans if you are eligible for an income-based repayment plan that can free up cash for savings.

You don’t have to set aside hundreds of dollars a month to reach your savings goals – even $ 10 is a start. Learn more about create budget here

8. Consolidating a student loan is similar to refinancing.

Strengthening is the process of combining several loans into one, while refinancing involves restructuring your current loan or loans and getting a new one with updated terms. You can only consolidate federal loans, while you can refinance private and federal loans. Consolidation will not give you the best rate, while refinancing can. Learn more about the differences between refinancing and consolidation are here

9. If you need money to cover your college tuition costs, the only option is a student loan.

You can apply for private scholarships and grants, work study programs, or ask your college to increase your aid package. However, ask your college if it will allow you to add up private scholarships and grants in addition to the assistance the college offers. Sometimes the college will deduct any help you get from a private source from the amount of the grant or scholarship it gives you. Learn more about there are different options for financial assistance

10. The possibility that the Biden administration will forgive a student loan debt is the only way to get a loan forgiveness.

While much of the talk about student loan forgiveness focuses on President Joe Biden’s campaign promise forgive $ 10,000 of debt, if you work in the public sector you may want to consider Government Service Loan Forgiveness, or PSLF, program. PSLF forgives debts to graduates work in the public sector after at least 10 years of service and appropriate pay. Your specific job does not matter, you just work for a government employer. There is no limit on the amount of money that can be forgiven.

Understanding the truth about student loans is important to help you make the best possible decisions about your debt. Explore before diving into common myths.

Do you have another student loan question you want an answer to? Email Ryan at rwangman@insider.com and your request may be the subject of a new student loan article.

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