The beginning of the first academic year for freshmen in colleges and universities brings a lot of excitement to students as they expect a completely new and most importantly “adult” experience there. Their parents, on the other hand, start to worry about the new problem, which is a gradually growing student loan.
Even though we are all aware of how student loans work in theory, in practice this whole process turns out a little more complicated. Here are 5 most common myths and misconceptions about student loans that we decided to clarify to you in this blog. Time to take off your pink glasses and face the reality!
“I received a loan and now I can spend as much as I can till I graduate”
One of the reasons why many postgraduates tighten their belts and pay the loan with a huge interest rate later is because they don’t live frugally during their college years. It’s worth remembering that you’re given the money that you will eventually have to pay back! Careless spending would only make the situation worse. So if you don’t want to live super frugal after graduation, start controlling your expenses right now.
“I will earn enough to cover all of my payments, including my student loan”
As discussed in the first myth, students tend to procrastinate their student loan matters until they actually start their job. Young people believe that entering high-rated universities is the key to their career success. In reality, though, many students realize they are not good enough for post-graduate programs and therefore left with a huge debt behind their backs.
There is nothing wrong with trying to achieve the best results. If this is what your aim is, then go for it right now. A sober reflection of your skills and knowledge will tell you correctly if it’s worth entering colleges with a super expensive tuition or maybe it’ better to save that money in future on some more important things.
Also, take a minute to read our top financial myths that you can tell you more about common money misconceptions.
“Consolidating my college debts is the best way to handle all of my loans”
Along with their diplomas, at the end of studies, some college students tend to receive thick folders with their loans from different agencies. Since different loans have distinct due dates and overall terms, managing all of them together becomes quite challenging. Therefore, consolidating all the loans into one seems like a very good option, doesn’t it? However, consolidation can actually work against you.
First, consolidating federal AND private loans will result in one large private loan, which means you’ll lose all the federal loan benefits. Second, paying a super large debt versus smaller ones may be difficult for you in terms of motivation. You are definitely going to spend decades to pay the whole amount and surely, you won’t feel relieved until that time.
“If I don’t have money to make payments, I just wait till the moment when I am able to”
Some students believe they can avoid making student loan payments. They think the lenders will let them wait until the time they will afford to do them. On practice, however, lending agencies don’t wait for anyone. If you don’t pay in time, they’ll chase after you and your loans will turn into a default. And there is nothing good in having a default. Not only it affects your credit score but prevents from getting a mortgage or other loans in the future. Read our article about how to refinance mortgage here.
So, if you did get in trouble and can’t afford to make payments on your student loan, first of all, reach your lender personally and solve the issue together.
“When I apply for the loan during my studies, the interest rate remains low”
This is one of the common misconceptions. In fact, however, students studying in college or university get the maximum possible rate. Only after they get their job and receive their salary, the interest rate drops to a certain point that depends on the salary amount. Sad, but true.
For sure, you still have no idea about how much you are going to earn in the future and the interest rate you should expect. But being aware of how the whole system works prevents from unpleasant situations in future when student debts can become a tough burden.