9 common myths about student loans

Are you letting go of your education dreams due to the fear of student loans? Bust these 9 student loan myths now!

Financing higher education is a cause of concern for many students looking to study at premier institutes in their country or abroad. Student loans help facilitate the higher education dreams of a large number of students. However, there seems to be an apprehension regarding student loans that curbs many students from taking a loan to study at institutions of their choice. Clarify student loan myths as they can cloud your judgement. Clear your understanding about student loans and make an informed decision about your choice to get one.

Top 9 Common Student Loan Myths

1. You will never be able to pay off your loan

This is one of the major student loan myths that demotivate a lot of students from going for a student loan. Yes, student loans are of considerable value and it might seem like a lot of money to pay off. However, do not worry, you have a diverse range of options to pay off your student debt once you graduate from college too.

Once you graduate, you can look to shift your repayment method to an income-driven plan or refinance your loan. An income-driven plan restructures your loan repayment based on your current family income so that you do not have to worry about repayment within a strict period. A loan refinancing is taking a new loan at a new interest rate to pay off your student loan. Refinancing can help you get better rates of interest than your student loan interest rates.

Do not shy away from a student loan just because of the fear of repayment. If you get a higher quality of education, you automatically achieve a better position to repay your loans. You should use an online student loan EMI calculator so that you can plan your loan repayment in an efficient manner.

2. You should borrow as much as you can

A mistake often made by borrowers is to take on huge amounts of student loans just because it is possible. Taking a student education loan of a huge amount can feel like a safety net during the course of your college education, however, it might turn out to be an insurmountable loan repayment amount once you complete your education.

The wise decision before you apply for a student loan is to make an estimate of exactly what the total expenses of your college course will come up to. If you are applying for student loans for studying abroad you should also factor in the costs of accommodation and other living expenses. Take a loan based on the amount you will need so that you can make the loan repayment easier for yourself. You can plan your finances by taking a certain amount of student loans and paying the rest with savings. Make use of a student loan calculator so that you do not end up borrowing an amount that will be very difficult for you to pay off. Plan your loan based on the career options for your future too.

Read More: Your Go-To Finance Guide To Study In New Zealand

3. You should always go for a student loan with low-interest rates

Lower interest rates on loans are always desirable. However, a huge student loan myth is that lower interest rates are always better for you.

While low-interest rates might make it seem like your repayment costs will not surmount to a larger amount, it is also very important to take a look at the period of loan repayment too.

If the loan repayment term with a low-interest rate makes you repay the full amount while you are still completing your college, then it can make it more difficult for you to pay back in such a short term. Student loan interest rates are an important factor in your loan decision but you should be wary of taking a student loan based on only this factor.

4. You will not get a loan if you do not have collateral or a good academic record

It is a myth that your student loan eligibility is based on only your academic record and if you have collateral for the loan. Having collateral and a strong academic record increases the chances of your student loan application being accepted. However, you should not be discouraged if you do not have a very strong academic record or loan collateral.

A good credit score can help you get a student loan. There are lenders in the market who will provide you with a student education loan if you apply with an earning co-applicant who has a good credit score. Many lenders also look at the future potential of a student to repay the loans. They are willing to offer student loans without collateral. If you are a candidate with the potential to repay the loans with your earnings after graduation, then it can become easy for you to get the loan.

See Also: Understanding Your Expenses to Study in UK

5. It is wiser to use personal savings rather than taking a student loan

Student loans are generally of a huge value and they defer people from wanting to take on such a huge amount of debt. Self-financing your education seems like the best option if you have the resources to do so. It is a myth!

Using up such a large chunk of your savings into education is not a very wise way to use your money. You can rather invest that amount of money into a scheme so that you can earn interest on it. Take a student loan and repay it with the help of the income you make from your investment schemes. This helps you save your personal funds and use them in a financially sound manner to fund your education. You might end up earning more than what is required for student loan interests.

6. There is no need to worry about the repayment of loans till you graduate

If you think that loan repayment only starts after you complete graduation, then it is one of those student loan myths that need to be busted.

A lender might provide the option of repayment once you get a job and start earning after college. During the duration of college, most lenders charge simple interest on student loans. The interest is compounded on the completion of the course which raises the amount of interest that you need to pay.

Try to start paying your student loan during your college to ease the burden of loan repayment upon the completion of your course. You can do part-time jobs and on-campus jobs to start earning while in college. Start planning loan repayment methods while in college so that you can kickstart your loan repayment and finish it off at the earliest.

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7. Income-driven loan repayment plans lower your debt repayment costs

An income-driven loan repayment plan adjusts your monthly loan payment based on the amount of money that you earn. While this seems like a good option for student loan repayment, it is a myth.

An income-driven repayment plan actually increases the amount of student loan interest over time. This repayment plan decreases the amount of monthly loan repayment but increases the time period for the repayment. Extending your loan period actually increases the amount of money you repay over time.

opt for an income-driven loan repayment plan only if you are really short on funds and require the relaxation to keep up with your student loan repayment.

8. The loan interest rates may keep fluctuating

It is a myth that student loan interest rates keep fluctuating.

This myth is absolutely baseless since you agree on a certain rate of interest once you sign an agreement for a student loan. Interest rates do fluctuate over time but you will not be charged according to the fluctuating rates. Your repayment will follow the agreed-upon interest rate for your loan.

9. You need to completely follow the advice of a loan service provider

If you have been told that a loan service provider is the only one whose advice you need to secure student loans then it is a complete myth.

Loan advisers do provide help during the student loan application process and give valuable suggestions too. However, it is not a good decision to blindly follow their advice since they might not suggest the best possible option for you. Take the help of a student loan EMI calculator and also plan your finances on your own. A loan service provider will ultimately look out for their best interest and not the best financial plan for you. Make an informed decision on the amount of loan that you need and the best repayment option for you.

Key Takeaways

• You do not necessarily require student loans for higher education.
• If you do require a student loan then be wary of student loan myths.
• Repaying your student loans is not an impossible task if you plan your finances.
• Lower student loan interest rates do not necessarily mean a better plan for you. Take a look at the period of repayment too.
• Start making loan repayment plans from the time you are still in college.
• You can get student loans without collateral or an impeccable academic record.
• Use a student loan calculator to accurately plan your finances for repayment of the loan.
• If you are having trouble repaying your loans you can extend them with the help of an income-driven repayment plan.

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