Degree or not, if you took out student loans to help pay for college, bills tend to follow. Student loan debt can be overwhelming. Add in conflicting messages from friends and the confusion only gets worse. This guide busts the 3 most common student loan myths to help you make more informed debt decisions.
Myth # 1: All Student Loans are the Same
No matter how similar they may appear, all student loans are not the same. In fact, there are some major differences to consider when it comes to federal versus private student loans. Here are some of the basics to keep in mind.
- Federal student loans: Are issued by the government. With federal student loans, you have the option to consolidate your debt into a more simplified repayment plan. The DOE offers a variety of options to fit just about any budget. Learn more about requirements for each plan by visit the DOE direct, or click here for a free consultation with a Docupop enrollment specialist.
- Private student loans: In contrast to federal student loans – banks, credit unions, and state-affiliated organizations issue private loans. Repayment options may vary among lenders as they set their own loan terms.
Myth #2: Consolidating Your Federal Loans Leads to Lower Interest Rates
Sadly, this is another student loan myth. The interest rates for federal loans are set by Congress and are non-negotiable. However, if you qualify for an income-driven repayment plan, consolidating your federal student loans could drastically lower your monthly payments. If you choose to consolidate, your interest rate becomes a weighted average of your current rates.
When it comes to private student loans, refinancing may be an option. Depending on the lender and terms you qualify for, refinancing your private student loans could lead to lower interest rates. Check with your current lender regarding current deals and offers. If none are available, shop around to see if you can find a better term elsewhere. Unfortunately, you cannot refinance federal student loans.
Myth #3: Payments are Calculated Based on Your Credit Score
Not true! This is another student loan myth. When it comes to federal student loans, payments are calculated based on the terms of your repayment plan, interest rate, and the debt you owe. Private loans, however, may take your credit score into consideration when determining whether or not to approve you for the initial loan and when deciding which loan term they may want to offer you.
Regardless of the type of loan(s), your payment activity on the back-end could impact your credit. For example, positive payment history could improve your credit score. Meanwhile, an incomplete transaction, late payment, or a default could negatively affect your score. If you’re concerned about your credit or are interested in learning how to improve your scores, ScoreShuttle is a great source for help.
The information above only contains a brief overview of selected student loan myths and facts associated with student loans. Consider the pros and cons before enrolling into any consolidation or refinancing plan. Do your own research and speak with your personal financial adviser to determine which options may be in your best interest.
Disclaimer: ScoreShuttle is a preferred partner of Docupop and Docupop may receive a referral fee for Docupop clients who sign up for ScoreShuttle services.