In the case of student loans, sorting out fact from fiction is quite difficult. There’s plenty of contradictory information online. Breaking down the details seems like a time-consuming task. Well, the following write-up debunks six student loan myths and tells you the truth about student debt. Please check it out right now.
- Consolidating Student Loans and Refinancing are Same
The experts providing debt management services said consolidation means combining several loans. On the other hand, refinancing means restructuring the current loans and getting a new loan with updated terms. You can consolidate federal loans only. You can refinance both federal and private loans. Consolidation might not provide you with a better rate, but refinancing does.
- Student Loans Decrease the Credit Score
The payment history is an integral part of the credit score. Your student loans will increase your credit score if you can make consistent payments. Doing so also proves to the lenders that you are a responsible borrower. A high credit score helps you achieve better rates on personal loans, mortgages, and auto loans.
- Federal and Private Student Loans are Same
Private loans do not have the same perks and borrower protections as federal ones. You become eligible for extra repayment choices and forgiveness programs with federal loans. Unlike the unsubsidized and direct subsidized loans, private loans need a credit check. You can enjoy lower rates and get the opportunity to opt for variable loans. That’s amazing, right?
- Lower Interest Rates is Always Beneficial
While the interest rate is an important determining factor, it must never be an end-all-be-all. It will also help to keep in mind the loan’s term duration and repayment options. The former impacts how much you have to pay each month. The latter could range from paying the entire balance before graduating high school to deferred payments.
- Saving and Paying Off Student Loans At the Same Time is Impossible
You can create a budget that accommodates all of your financial priorities. Set aside a portion of your income toward the loan payments and some toward the savings account. Are you eligible for the income-driven repayment program? If yes, you are free to make small payments each month. This leaves behind enough cash to save. You do not have to keep hundreds of dollars to accomplish your savings goals. Even $5 is a start.
- Stop Paying Loans Until You are Financially Stable
When you are financially unstable, the only way out is to stop making payments. This hampers the credit score. Instead, contact the federal loan provider and see if you can request an income-driven repayment program. These programs evaluate your earnings and family size while calculating monthly payments. Based on one’s situation, the payment can be as low as $1 per month.
You may also opt for the loan forbearance for reasons such as financial problems, medical expenditures, and unemployment. General forbearances last for a year. Remember, the interest will continue accumulating during the forbearance period.
Being aware of the honey-trapped myths stated above helps you understand student loans better. You can now arrive at the best decision possible regarding your student debt. Have more doubts and questions? Well then, please get in touch with an experienced financial consultant.