Myths About Student Loans – Facts
Myths About Student Loans – Facts. Not everything you read or hear regarding student loans is factual information. Keep these eight student loan fallacies in mind to avoid being misled down the wrong road.
There is a plethora of information on student loans available on the internet. Some of this information should be taken with a grain of salt or maybe ignored entirely depending on your point of view.
Here are eight common misconceptions about student loans to be aware of:
1. Student loan debt is not a concern while you are in school
The biggest mistake you can make is to take out student loans without thinking about your degree or potential profession or without looking into strategies to reduce your debt while still in school and then regret it later.
After all, if you live the way a professional does while in school, you may find yourself living the life of a student after you become a professional. If you rely on student loans to maintain a high standard of living, you may find yourself unable to maintain that standard of living once you graduate from college. While you’re taking on debt, be sensible and consider how you’ll pay it off.
2. Another common misconception is that if a person files for bankruptcy, their debts are discharged.
If you file for bankruptcy, it is possible to have your student loans erased, but it is extremely tough. In order to do so, you must demonstrate that you are experiencing “undue hardship” and that the undue hardship is expected to continue throughout the duration of the loan’s term period (for example, if you become disabled and can no longer work).
However, while the meaning of “undue hardship” differs from court to court, it is generally considered to be extremely difficult to establish. This means that if you declare bankruptcy, it is highly likely that your student debt will be carried over with you.
3. Student debt refinancing is always a good idea, according to some.
Student loan refinancing is the newest and most popular trend right now. While it may make sense for private loans, it is important to be cautious when it comes to federal loans. The federal student loans you refinance are converted into private student loans when you refinance your federal student loans. This implies that the income repayment plans and loan forgiveness alternatives that were previously available for Federal loans will no longer be available.
Aside from that, your student loans will not be forgiven upon death (unless these provisions are explicitly stated in your private loan terms); you will need to obtain life insurance to cover your loans so that they do not pass on to your children if something happens to you.
4. No need to be concerned about life insurance.
There is a good chance that life insurance isn’t even on your radar right now, but if you have private student loans, you must obtain life insurance to cover your debt. In most cases, if you die before repaying private student loans, your debt will not be discharged upon your death (see this story about mourning parents for more information).
If your parents cosign your loans and you die before they are fully repaid, your parents will be responsible for paying your loans until they are fully returned. If you have life insurance, it may be possible for them to use it to pay off the debt. In comparison to federal loans, which are erased upon your death, this is a significant contrast.
5. Income repayment programs will not have an impact on your credit score.
It is possible that you will be placed on one of the income-based repayment plans if you have a significant amount of student loan debt and make little money. Keep in mind that if this occurs, you should at the very least be making payments that cover the interest on your student loans. It is possible that your debt will actually increase over time if you do not take action.
The more the amount of debt you have, the greater your debt-to-income ratio. The greater the increase in this ratio, the more difficult it will be to obtain a significant loan such as a mortgage.
6. If you have many student debts, you should consolidate them
Student loan consolidation should not be viewed as a mechanism for taking a number of loans and combining them into a single loan only for the goal of making monthly payments more manageable. Instead, consider of debt consolidation as a tool for lowering your interest rate – if it makes financial sense for you. If you approach consolidation from the perspective of the former, you may find yourself paying more than you otherwise would have had to. The servicer will take the weighted average of all of your loans and round it up to the nearest dollar. You may end up spending more in the long run as a result of this. Consolidating your student loans should also be approached with caution, since you may forfeit some of the benefits of the original conditions if you do so.
7. Income-based repayment programs are the most advantageous alternative.
If you are unable to make the normal monthly payment on the ten-year plan, income repayment plans may be an option for you. This is beneficial if you are in a tight spot and are unable to make your payments. But many people utilize it as a strategy to free up money to sustain their lifestyle while also deferring their student loan repayments until later in life. Only if you are in need of their assistance and only until you are able to pay the normal amount should you consider using income repayment programs.
8. You’ll never be able to pay off your student loans completely.
My acquaintances who have student loans often complain that their debt is so large that they will never be able to pay it off. They give up when they realize they have no hope. Instead of paying off their debt, they defer it or make the fewest payments possible while spending more money in other aspects of their lives. This doesn’t have to be you though!
If you feel that you will be able to pay off your student loans, you will find a means to do it. Starting off is as simple as having confidence, a commitment, and the passion to do it. Don’t let anyone convince you that you are unable to pay your loan. If you read David’s narrative, you will see that there is potential everywhere.