Many people take out student loans in an attempt to ensure they earn more over their working lives. Overall student loan debt in the US is now more than $1.5 trillion. Those in such debt generally have a great desire to pay it off. This leads to many myths around the subject of student loan debt. Here are a few to avoid.
You Can’t Pay Student Loans Early
There is a common myth that says you have to pay the stated amount each month and that it’s impossible to pay off student loan debt early. This is not the case. It is indeed possible to pay extra and take care of student loans before the actual term of the loan is finish. There’s no penalty for paying early, and you may be able to save thousands in interest costs in the process.
You’re Stuck With Your Interest Rate
Student loans can come from the government, and they can come from private lenders. Those who take out loans from multiple lenders will likely get stuck with a variety of interest rates. Private loans can come with higher interest rates, but there’s no need to be stuck with a bad rate. It’s possible to refinance these loans and save money in the process. There is the possibility to consolidate the loans into one loan if you have a good credit score.
You Can Skip Payments
Some borrowers are stuck with very large student loan payments each month. There is an option for income-based repayment plans. Others might think skipping a payment or two is a good idea from a cash flow standpoint. Actually, this idea could not be further from the truth. Going into default on a student loan will hurt your credit score. Additionally, the interest will continue to compound on the unpaid amount, which will increase the amount of debt you actually owe.
Public Service Forgiveness Is Free Money
There is a program in place that allows borrowers who work in public service to have their student loan debt forgiven after spending 10 years serving the public. However, contrary to popular belief, this is not free money. You’ll have to claim the amount of the debt that gets discharged as income on your tax return, and you’ll owe taxes on that amount.
Student loans can be scary. The amount that college students are willing to borrow has grown in recent years. There are many myths that surround repayment. Don’t get caught up in believing them. They can wind up costing you even more money.