There’s a lot of student loan advice out there, but unfortunately not all of it is created equal. Even student loan servicers have been accused of misleading borrowers and guiding them into repayment plans that did more harm than good.
Just as the consequences of not paying student loans can haunt you for years to come, so too can the consequences of following subpar advice. So if you’ve heard any of the following so-called words of wisdom, think twice before you act:
Many students feel pressure to attend the highest-ranking college to which they get accepted, regardless of the cost. Traditional wisdom says you can take out loans at the beginning of college and figure out how to pay them back later.
But as many borrowers have found out the hard way, taking on a lot of debt can create a major burden for years to come. Bob Haegele is one such borrower who had to pay back nearly $100,000 in student loans.
“Quite possibly the worst student loan advice I received is simply not to worry about them,” Haegele said. “The idea is to attend the school that your see as the best fit, regardless of cost.”
He calls this idea dangerous, saying that many 18-year-olds don’t understand the implications of taking on such large amounts of debt until it’s too late. When it comes to college and student loan advice, Haegele suggests not to rely solely on college rankings, but also to consider tuition costs and the amount of loans you’ll need to borrow to cover them.
“Considering the cost of college is important, and there are many ways to make it more affordable,” he said. “That is something that should never be overlooked.”
As a student, you’re probably aware that you can put your student loans out of your mind until your grace period is over, typically six months after graduation. While you technically don’t have to make payments on most types of loans while you’re in school, your debt balance could be growing all that time.
Once you graduate, you might face a much bigger obligation than what you originally borrowed, due to interest growth and capitalization. So waiting to make payments until your grace period isn’t necessarily the best way to go.
“One piece of advice my parents gave me was not to worry about my student loans until the grace period was over,” said student loan borrower Sam Varnerin. “Some of my student loans were unsubsidized, and with one to three years of compounding interest, what would have been $25,000 [eventually] ballooned to $35,000, come November of the year I was in repayment.”
Varnerin regrets not making in-school payments, especially since she was already working part-time as a student.
“I worked every summer and had three part time jobs in college,” she said. “Had I prioritized paying down that interest so it didn’t compound on itself in college, I could have saved myself a ton of compound interest.”
If you can swing small in-school payments, they may help you avoid a financial headache down the road.
Putting your loans into forbearance can be a helpful approach if you’re struggling to cover your bills. But pausing payments this way isn’t for everyone, since interest will continue to accrue on your loans.
“Forbearance is often seen as a default option for people having trouble paying loans,” said Shiva Bhaskar, consumer credit attorney and cofounder of Tier One Credit. “However, for most, some sort of income-based repayment would seem to offer better long-term savings.”
Putting your federal loans on an income-driven repayment plan — which caps your monthly payment at a percentage of your disposable income — could make your burden more manageable without pausing repayment completely.
“Forbearance is so easy to enter into, versus having to fill out paperwork and obtain approval for income-based repayment, [so] many people treat it as a default option,” said Bhaskar. “But [it’s] rarely a good idea in the medium to long run.”
While you might have received advice to put your loans into forbearance, look around to see if any other options would be more cost-effective in the long run.
Some people might advise you to pay off your loans as fast as possible. While the consequences of not paying student loans on time are certainly to be avoided, it’s not always the best financial decision to pay off your student loans ahead of schedule, especially if doing so would come at the expense of other goals.
Some “bad advice I received is to pay off your student loans as fast as possible,” said Monica Lam, financial writer at Lucky Mojito. “[But] do you have an emergency fund, do you have other debt with higher interest, are you saving for a wedding or a house, are you investing? It’s easy to get laser focused on one goal and then forget about all the other ones.”
While paying off student loans quickly is an admirable goal, you also want to be careful not to forget about other financial priorities.
Your student loan servicer should be giving you good student loan counseling, but unfortunately that’s not always the case. In recent years, the Consumer Financial Protection Bureau, state attorneys general, lawmakers and student loan borrowers have accused student loan servicers of sometimes providing misleading information.
“Your servicer may be able to offer some guidance, especially if you’re having trouble making your payments,” said Leslie Tayne of Tayne Law Group, P.C. “But at the end of the day, their purpose is to make money off your student loans, so they may not always have the best advice for your situation.”
While it’s important to communicate with your servicer, especially if you’ve run into financial hardship, you should look to a variety of trusted sources for guidance on your loans.
“Do some research on your own,” suggested Tayne. “Consult help from trusted friends and family members. And consider getting advice from a financial professional, such as a debt attorney.”
“Comparing different pieces of advice and taking into account what’s best for your situation will be the most helpful at the end of the day, rather than simply relying on what your servicer says,” she added.
Some borrowers have experienced student loan nightmares with private lenders, so they advise others to avoid private loans at all costs. But private student loans can come in handy if you need additional funding for school, so long as you avoid sky-high interest rates and understand how these differ from federal loans.
Going with a private lender can be especially helpful if you qualify for student loan refinancing, as you’ll be able to restructure your debt and might hopefully snag a lower interest rate.
“One bad piece of student loan advice I hear floating around is that you should never refinance your federal student loans into private loans,” said Logan Allec, founder of Money Done Right. “I weighed the options carefully and decided that refinancing my federal student loans into a private student loan made much more sense in my situation, especially considering that I did not care so much about lowering my monthly payment, but rather minimizing my total interest paid over the life of my loan.”
As Allec notes, refinancing federal loans into a private one means you’ll lose access to federal protections, like income-driven repayment programs or Public Service Loan Forgiveness. But if you don’t need these federal benefits, refinancing with a private lender could be a savvy way to save money on your student loans.
Rumors about mass student loan forgiveness have been floating around for years, with some Democratic presidential candidates throwing their support behind the idea. But even if a pro-forgiveness candidates gets elected, such wide-sweeping reforms might not pass into law so quickly, if at all.
“The worst piece of advice I got was when people told me to keep paying the minimum on my student loans because President Obama would forgive student debt,” Zina Kumok, personal finance editor at DollarSprout. “I graduated from college in 2011 and immediately felt the weight of my student loans.”
Instead of heeding this wayward advice, Kumok made extra payments on her loans to pay them off early.
“I’m so glad I didn’t pay attention to their suggestions, or I’d still be paying off my debt,” she said.
Although mass forgiveness would be a dream come true for many borrowers, it might never come to pass. You’ll likely be better off if you take debt repayment into your own hands or pursue an existing student loan forgiveness program.
Everyone’s financial situation is unique, so good advice for one borrower might be terrible advice for someone else.
“Any piece of advice with the word ‘never’ or ‘always’ attached to it definitely deserves a second look, and this is especially true when it comes to student loans, because every borrower’s situation is unique,” said Allec.
It’s important to do your own research on student loans so you can avoid falling prey to bad advice or even student loan scams. By arming yourself with knowledge, you’ll be able to make the right student loan decisions for your situation.