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7 common student loan myths debunked
Can you tell fact from fiction when it comes to your college debt? Here are the 7 common myths about student loans.
Student loans can be one of the most complicated types of debt out there, thanks to a wide range of repayment, forgiveness and deferment options. Knowing student loan fact from fiction can help you navigate repayments and save in both the short and long term.
Myth #1: I’m stuck with the same rates forever.
You aren’t. You can change your interest rate by refinancing your student loans with another lender. While you need excellent credit to get the best deal, you can also apply with a cosigner who has strong credit to help you qualify for a lower rate. Refinancing can also help you extend your term to lower your monthly repayments — or shorten it if you want to get out of debt faster.
If refinancing is off the table, you can often negotiate your rate down with private lenders. Call up your servicer and make a case for yourself — most are willing to tweak the terms to help you avoid defaulting.
Compare personal loans for refinancing
Before applying for a personal loan, contact the lender to see if they allow you to refinance the specific type of student loan that you have (federal, provincial and/or private).
Myth #2: I should only refinance private loans.
It’s true that refinancing government student loans means you lose all of the benefits that come with this government-issued debt. But if you’re making a high enough income to afford a standard repayment plan and have good credit, chances are you wouldn’t benefit from income-driven repayments, deferment or even student loan forgiveness. But you could benefit from lower rates with a private lender.
Consider what you stand to lose and if it would actually be a loss before you write off refinancing.
Myth #3: Student loans should take priority over other types of debt.
News of the student loan crisis might make you think you should get rid of this debt as fast as possible. Paying off any kind of debt as quickly as you can is generally a good way to save. But if you’re juggling student loans, credit card debt and car payments, you might want to have your student loans take a back seat.
That’s because student loans typically have lower rates and more flexibility if you’re in danger of defaulting than other types of debt. You can change your repayment plan on government loans at any time without having to refinance. And student loans generally come with more options to pause repayments if you hit tough times.
Myth #4: Consolidation can give me better rates.
Consolidating your government student loans is not likely to give you a lower interest rate. And if your credit score isn’t good or you income isn’t high enough, you probably won’t be able to lock in a better rate after consolidating your private student loans, especially if you can’t find someone who’s willing to cosign on the consolidation loan.
Myth #5: I can’t change my servicer.
You aren’t necessarily stuck with the company that handles your student loan repayments forever. With both federal and private loans, you can also change up your servicer by refinancing. Research your refinancing company’s servicer to ensure you’re making a change for the best by reading reviews and looking up complaints on the Better Business Bureau’s website.
Myth #6: Income-driven repayments are always cheaper.
Repayments based on your income are only less expensive if you have a low salary, high loan balance or both. But you might be surprised to find that fixed repayments are actually much less expensive than income-driven repayments — and much less of a hassle.
Myth #7: Only government loans are eligible for forgiveness.
While it’s true that the government offers student loan forgiveness in special cases, like for qualifying medical and nursing students, it’s much more rare to find similar programs for private student loans. Still, your best bet is to talk to your lender to ask about any loan forgiveness options they may offer. At the very least, you could negotiate to get a better interest rate or more favourable loan terms. Don’t be afraid to reach out to your lender because they will often try keep your business on different terms than lose your business all together if you were to default on the loan.
Student loans might be more flexible than you think. You have options to change your rates, switch servicers and even apply for forgiveness. You can learn more about how it all works by reading our guide to student loans.
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