Misinformation can be dangerous, especially when it comes to paying off student loan debt. To help you weed out the bad advice from the good, here are five common student loan myths to watch out for.
By recognizing these misconceptions, you’ll be able to avoid making mistakes with your loans and manage your finances the right way.
6 student loan myths that mislead borrowers
1. You should borrow as much as you can
2. You don’t need to worry about paying student loans in school
3. Income-driven repayment plans will lower your student loan costs
4. Refinancing your student loans is always a good idea
5. You need to pay for student loan counseling
6. You’ll never pay off your student debt
Plus: Pinpointing common student loan myths and bad advice
1. Myth: You should borrow as much as you can
A big mistake a lot of borrowers make is blindly taking out student loans without considering the impact this debt will have on their future finances or career choices. Even if you can take out a lot of student loans, that doesn’t mean you should.
When you receive your financial aid award letter, for instance, you’ll see how much you’re eligible to borrow in federal student loans. But you’re not obligated to accept the full amount, especially if you can lower costs by applying for scholarships or choosing a school with a lower price tag.
What’s more, most private lenders will let you borrow up to the cost of attendance of your school, minus any other financial aid already received. But again, you shouldn’t necessarily borrow the maximum amount if it’s going to be burdensome in the future.
Before signing any paperwork, use student loan calculators to estimate your future monthly payments, as well as the amount you’ll spend on interest. And consider what job you’ll pursue after graduation that will enable you to make payments on your debt.
If the payments seem extremely high, consider ways to reduce your student loan borrowing. And if you find you borrowed more than you need for the semester, consider returning the unused loan money so you don’t have to pay interest on it in the future.
2. Myth: You don’t need to worry about paying student loans in school
This isn’t technically a student loan myth, since you don’t need to make payments on your student loans while you’re enrolled in school or for six months after you graduate. This period of deferred payments is called a grace period.
But even though payments aren’t required, it’s smart to consider making in-school payments. You don’t necessarily need to pay your full student loan bills, but you could make small payments of $25 per month or interest-only payments as a student.
This way, you’ll cut down on accrued interest, making your student loan balance more manageable after you graduate. If you can afford in-school payments, perhaps by working a part-time job, you’ll make student loan repayment easier in the years to come.
3. Myth: Income-driven repayment plans will lower your student loan costs
Income-driven repayment plans, such as income-based repayment and Pay As You Earn, adjust your monthly payments based on your income while extending your loan terms to 20 or 25 years. They can be a big help if you’re struggling to keep up with payments and need to lower them so you don’t fall behind.
But while income-driven repayment plans typically make your loans more affordable from month to month, they actually increase your costs of borrowing over the long run. That’s because they extend your loan terms to 20 or 25 years.
Since you’re in debt longer, your loans have a lot more time for interest to accrue. Let’s say, for instance, you’re paying off a $30,000 loan at a 5.05% interest rate. Over 10 years, you’d pay $8,272 in interest. But over 20 years, your interest costs would be $17,716. And after 25 years, you’d pay $22,876 in total interest.
Even though income-driven repayment plans give you some breathing room here and now, they can make your loan more expensive overall. That said, you will get your loans forgiven if you have a remaining balance at the end of your 20- or 25-year term.
4. Myth: Refinancing your student loans is always a good idea
Another one of the student loan myths to be aware of is the idea that refinancing student loans is a good idea in every situation. Student loan refinancing can be a great way to negotiate a lower interest rate, change your payment schedule or make your loans easier to manage.
But while refinancing private student loans is usually beneficial, you’ll want to be careful about refinancing federal student loans. When federal student loans go through the refinancing process, they’re converted into private student loans and are no longer eligible for federal repayment plans, such as income-driven repayment, or programs, such as Public Service Loan Forgiveness.
If you’re relying on federal protections now or think you’ll need them in the future, it’s probably not a good idea to refinance your federal student loans with a private lender. Think through the pros and cons of refinancing to make the best decision for your student debt.
5. Myth: You need to pay for student loan counseling
Another student loan myth is the idea that you need to pay a counselor to get your student loans under control. While there are some reputable student loan counseling services that cost money, you can figure out how to manage your student loans on your own for free.
For example, you don’t need to pay anyone to consolidate your loans or apply for an income-driven repayment plan. And you should never pay a fee in exchange for loan forgiveness, as legitimate student loan forgiveness programs are free.
If you’re feeling totally overwhelmed by your debt, a counselor may be able to help you get it under control. But they don’t know any secret information you can’t find on your own, so make sure it’s truly useful before paying anyone for advice on your student loans.
6. Myth: You’ll never pay off your student debt
Student loans can be extremely stressful, and it might feel like you’ll never pay off your debt. But don’t despair.
That mountain of debt you have after graduating college might seem insurmountable, but you have options. Some of these options include income-driven plans, refinancing and direct loan consolidation.
Some borrowers also find ways to decrease their spending or increase their income to pay off debt ahead of schedule. For example, this couple in their early 30s paid off over $80,000 in student loans by teaming up together and working hard at it for three years. And this nurse practitioner was able to clear $70,000 worth of school debt in a single year.
Although you might need to make some sacrifices now, your hard work could be worth it when you make that final student loan payment.
Pinpointing common student loan myths and bad advice
One of the best ways to bust student loan myths is to inform yourself with reliable information. Make sure to rely on trusted resources, such as StudentAid.gov or Student Loan Hero.
If you’re applying to refinance student debt, stick with legitimate lenders that have a good reputation for customer service. If you’re still in school, reach out to your financial aid office to connect with trained experts.
In this age of technology, there are a lot of accessible tools to manage your student loan debt. So don’t fall prey to these common student loan myths. Instead, kick them to the curb and take control of your student loan situation by utilizing the best advice available to you.
Rebecca Safier contributed to this report.
Interested in refinancing student loans?
Here are the top 9 lenders of 2022!| Lender | Variable APR | Eligible Degrees | |
|---|---|---|---|
 | 1.74% – 8.70%1 | Undergrad & Graduate | |
 | 1.74% – 7.99%2 | Undergrad & Graduate | |
 | 1.74% – 7.99%3 | Undergrad & Graduate | |
 | 1.89% – 5.90%4 | Undergrad & Graduate | |
 | 1.74% – 7.99%5 | Undergrad & Graduate | |
 | 2.05% – 5.25%6 | Undergrad & Graduate | |
 | 1.86% – 6.01% | Undergrad & Graduate | |
 | N/A7 | Undergrad & Graduate | |
 | 1.99% – 8.38%8 | Undergrad & Graduate | |
| Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Splash Financial. Splash Financial DisclosuresTerms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice. To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit. Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 4, 2022. 2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest. Earnest DisclosuresStudent Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Let us know if you have any questions and feel free to reach out directly to our team. 3 Important Disclosures for SoFi. SoFi DisclosuresFixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi. 4 Important Disclosures for Laurel Road. Laurel Road DisclosuresAll credit products are subject to credit approval. Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com. As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount. Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate. Interest Rate: A simple annual rate that is applied to an unpaid balance. Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%. KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. This information is current as of April 29, 2021. Information and rates are subject to change without notice. 5 Important Disclosures for Navient. 6 Important Disclosures for LendKey. LendKey DisclosuresRefinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution. Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810. As of 5/17/2022 student loan refinancing rates range from 2.05% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.93% Fixed APR with AutoPay. 7 Important Disclosures for PenFed. PenFed DisclosuresFixed Rate Loan Terms: 5 years/60 monthly payments, 8 years/96 monthly payments, 12 years/144 monthly payments or 15 years/180 monthly payments. Annual Percentage Rate is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed rates range from 3.29% to 5.43% APR. Rates are subject to change without notice. Fixed APR: Fixed rates will not change during the term. This rate is expressed as an APR. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. 8 Important Disclosures for Citizens. CitizensBank DisclosuresEducation Refinance Loan Rate Disclosure: Variable interest rates range from 1.99%-8.38% (1.99%-8.38% APR). Fixed interest rates range from 2.99%-8.63% (2.99%-8.63% APR). IS Variable Rate Disclosure: Variable Rates advertised are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of December 1, 2021, the one-month LIBOR rate is 0.09%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. Your final variable rate may be based upon the 30-day average SOFR index, as published by the Federal Reserve Bank of New York. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%. ERL Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of May 1, 2022, the 30-day average SOFR index is 0.29%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%. Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer. Lowest Rate Disclosure: Lowest rates are only available for the most creditworthy applicants, require a 5-year repayment term, immediate repayment, a graduate or medical degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review. |
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