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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.

The 7 myths about student loans:

  • Myth #1: I’m stuck with the same rates forever.
  • Myth #2: I should only refinance private loans.
  • Myth #3: Student loans should take priority over other types of debt.
  • Myth #4: Consolidation can give me better rates.
  • Myth #5: I can’t change my servicer.
  • Myth #6: Income-driven repayments are always cheaper.
  • Myth #7: Only federal loans are eligible for forgiveness.

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).

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Name Product Interest Rate Loan Amount Loan Term Requirements Link
Loans Canada Personal Loan
Secured from 4.70%, Unsecured 8.00% - 46.96%
$300 - $50,000
3–60 months
Requirements: min. credit score 300
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A broker with the largest lender network in Canada. Fill out one application and get matched for free with lenders.
Spring Financial Personal Loan
17.99% - 46.96%
$500 - $15,000
9 - 48 months
Requirements: min. income $1,800/month, 3+ months employed, min. credit score 500
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If you're not eligible for an unsecured loan, you may be offered a credit builder loan to help improve your credit score.
goPeer Personal Loan
8.00% - 33.92%
$1,000 - $25,000
36 - 60 months
Requirements: recommended income $40,000/year, no payday loan debt, min. credit score 600
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Connects creditworthy Canadians looking for an unsecured loan with Canadians looking to invest. Apply in minutes and get a response within 24 hours.
SkyCap Financial Personal Loan
12.99% - 39.99%
$500 - $10,000
9 - 60 months
Requirements: min. income $1,600/month, stable employment, min. credit score 550, no bankruptcy
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Apply in less than 5 minutes for an unsecured loan and if approved, receive financing in as little as 24 hours.
Loanz Personal Loan
29.90% - 46.90%
$1,000 - $15,000
12 - 60 months
Requirements: min. credit score 570, min. income $1,200/month, 3+ months employed
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More Info
Apply online and get approved in less than 3 minutes. Receive funds in as little as 15 minutes. Borrowers with bad credit or no credit can apply.
LoanConnect Personal Loan
Secured from 4.99%, Unsecured 5.99% - 46.96%
$100 - $50,000
3–120 months
Requirements: min. credit score 300
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More Info
Fill out one application with this broker and get pre-approved by different lenders in 5 minutes.
OFFER
Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6–60 months
Requirements: min. income $13,000/year, min. credit score 500
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More Info
Get a free quote without affecting your credit score and get an unsecured loan the same day. 100-day money-back guarantee: If you're not happy with your loan, pay back the principal and get the 100 days of paid interest and fees back.
SECURED
Fairstone Secured Personal Loan
19.99% - 23.99%
$5,000 - $50,000
36 - 120 months
Requirements: must be a homeowner, min. credit score 560
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Use your home equity to get a secured loan with flexible repayment options. Get a free quote without impacting your credit score.
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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.

How to decide which student loans to pay off first

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.

Bottom line

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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