Learn the Truth About Student Loan Repayment
Student loans are coming due for borrowers who graduated or left school in May. But choosing the best repayment plan while avoiding misinformation and student loan scams isn't always easy.
Experts weighed in on the student loan repayment myths that debtors should dodge. Answers have been edited for length and clarity.
1. The college or university I graduated from cannot help me.
"The financial aid office at a student's institution is a great resource to help explain the loan repayment options and help students connect with a loan servicer. Sometimes the terms, paperwork and process can be overwhelming and students need someone to navigate these waters with them," Steve Booker, interim dean of admission and enrollment at Rollins College, told U.S. News.
The financial aid office has an interest in helping borrowers to repay loans since a high default rate can negatively impact the school, he says.
2. I'll never pay off my loans.
"Student loan payments can feel a bit overwhelming, especially for a new college graduate," Dominic Yoia, associate vice president and university director of financial aid at Quinnipiac University, told U.S. News.
"While the first year of payments may consume a larger portion of a student's disposable income, payments become more manageable over time as salary increases. Students can also make larger monthly payments toward their principal without penalty which will shorten the number of years required to pay the loan."
3. Lenders are inflexible.
"It's important that students know their lender or servicer is not scary, nor should they be avoided if there is trouble making a loan payment. These lenders are very willing and able to help student loan borrowers find the right repayment plan or help them postpone repayment if they qualify for a forbearance or deferment," Melissa Shepherd, director of financial aid at Longwood University, told U.S. News.
4. If I file for bankruptcy, I won't have to repay my student loans.
"This is not the case. Most borrowers will not be able to discharge their student loans under Chapter 7 or Chapter 13 bankruptcy. There is a small exception if the loan repayment will cause an undue financial hardship," Tara M. Jones, director of student financial aid at Spring Hill College, told U.S. News.
There are flexible payment options available that should be considered before bankruptcy, she says.
5. I should consolidate all of my student loans into one loan.
"If borrowers only have federal direct loans, the servicer will already use a combined billing so that the students have one payment to make," Terry M. Micks, loan programs coordinator at University of Wisconsin--La Crosse, told U.S. News.
Plus, he says, students can't combine federal and private loans through federal consolidation. They may lose benefits associated with certain loans. And servicers round up the weighted average of the rates on the loans being consolidated, so borrowers may pay a higher interest rate.
6. It costs money to consolidate my loans or change my repayment plan.
"Borrowers need to be reminded that many financial aid offices as well as their servicer can assist in consolidating their loans and provide deferment and forbearance options. These services are provided free for borrowers," Terry Finney, director of financial aid and scholarships at Arkansas State University, told U.S. News.
7. Public service loan forgiveness will instantly wipe away my loan debt.
"I wish that students were more aware that public service loan forgiveness doesn't happen until they've signed up for one of five possible repayment plans and have made 120 qualified payments. Sometimes students think this happens as soon as they start a job in public service. It doesn't," Kristan Venegas, associate professor of clinical higher education in the Rossier School of Education at the University of Southern California, told U.S. News.
8. I can count on quickly landing a job that will make repaying student loans easy.
"While research shows a correlation between degree attainment and higher incomes for individuals who earn a college degree, the economy, job markets and individual life circumstances are subject to change beyond students' control. So borrow mindfully, keep track of cumulative indebtedness and take measures to minimize student debt," Clara Capron, assistant vice president for enrollment and student services at Western Washington University, told U.S. News.
9. There are limited options for student loan repayment.
"Students have several options of repayment, depending on their circumstances. These include forbearance, graduated payments and the standard 10-year repayment plan. Students also can pay interest while they are in school. The bottom line? Students need to stay in touch with their loan servicer," says Elaine Henrie, director of financial aid, scholarships and veterans services at Emporia State University.
10. Deferments, forbearances and alternative plans reduce bills so that you can pay for other things.
"Many borrowers don't take the time to really understand the long-term effect of not making their minimum monthly payments and how it can actually end up costing them a lot more in interest. It can negatively impact their ability to make their long-term dreams come true, like buying a house, a new car or starting a business. The borrower should use these benefits only in emergency situations and not just to help them manage their bills," says Denise Tardell, associate director of the office of financial aid at California State University--Fresno.
Find More Information on Repaying Student Loan Debt
Student loan repayment is just one part of the college cost conversation.