When it comes to repaying student loans, failing to separate truth from fiction is a costly mistake. Students who don’t have the facts straight about their repayment options may overpay on their loans, fall for scams or miss out on borrower protections.
To debunk common misunderstandings, U.S. News had financial aid experts weigh in on the student loan repayment myths they’d like to see nixed. Answers have been edited for length and clarity.
Steve Booker, interim dean of admission and enrollment, Rollins College
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. The financial aid office also has a vested interest in ensuring borrowers maintain their loans and remain in good standing as a high default rate can negatively impact the college.
[Understand the consequences of student loan default.]
Dominic Yoia, associate vice president and university director of financial aid, Quinnipiac University
I’ll never pay off my loans. Student loan payments can feel a bit overwhelming, especially for a new college graduate. 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.
Melissa Shepherd, director of financial aid, Longwood University
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.
[Know when it’s OK to postpone your student loan payment.]
Tara M. Jones, director of student financial aid, Spring Hill College
If I file for bankruptcy, I automatically will not 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. The test to determine the undue hardship varies from court to court, and most are hesitant to discharge student loans. Some courts may use the Brunner test or the “totality of circumstances” test. There are many flexible payment options available that should be considered other than bankruptcy.
[Learn the truth behind the student loan bankruptcy myth.]
Terry M. Micks, loan programs coordinator, University of Wisconsin–La Crosse
I should consolidate all of my student loans into one loan. First, if borrowers only have federal direct loans, the servicer will already use a combined billing so that the students have one payment to make. Second, students can’t combine their federal loans with private loans in a federal direct consolidation loan. Third, if students have benefits from a Perkins loan or from loans that were taken out under the Federal Family Education Loan program, they stand to lose those benefits in consolidation. Determine whether those benefits outweigh the benefit of combining loans into one payment. Fourth, while the servicer will take a weighted average of the interest rates on the loans being consolidated, they will round up so borrowers could actually be paying a higher interest rate than the true average of the rates.
Terry Finney, director of financial aid and scholarships, Arkansas State University
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, and they should never pay anyone. All the borrower need to do is contact the financial aid office where they attended or log on to the National Student Loan Database System to find out who their servicer is and call them.
Kristan Venegas, associate professor of clinical higher education, Rossier School of Education, University of Southern California
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.
Clara Capron, assistant vice president for enrollment and student services, Western Washington University
Soon after I graduate, I can count on landing a job that will make repaying my student loans a relatively easy, painless process. 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. Trim those discretionary expenses, work part time and graduate on time.
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
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8 Student Loan Repayment Myths Experts Want to See Disappear originally appeared on usnews.com
