All too often, people take out student loans because they realize the importance of higher education, but without the knowledge imparted at university, they don't fully understand the long-term effects or how to pay off student loans without financial hardship. A representative giving the loan will explain the debt, yet there remains a few common misconceptions among graduates about how to pay off student loans.
The Loans Will Never Get Paid Off
To a recent college graduate, the loan term is roughly as long as the graduate is old. That seems like a long time, but the fact of the matter is that with steady payments and sound financial planning the loan will get paid off eventually.
Repayment Should Be the First Priority
Although getting out of debt is important, often the interest rate paid toward the loan is less than the interest earned through investments so a windfall or money earned through salary is usually better used toward making more money rather than paying off college loans early.
The University Can't Help
The university isn't directly in charge of the debt, but deals with the loan company more than any individual student. A student adviser or financial counselor is going to be aware of the options available and help the graduate use them to their advantage.
Loan Consolidation is Always a Good Idea
Loan consolidation has more to do with ease of payments than it is a sound financial decision. There are situations in which loan consolidation may be a good idea, but typically it raises the interest rate and puts the debt into the hands of a third party.
Lenders Won't Negotiate
Although the student agreed to the terms of the loan before taking them, there are ways to negotiate and most lenders are understanding of hardships. A deferment is a simple negotiation, giving the graduate a period of time to find a job or recover from illness in which they don't receive penalties for missed payments.
Deferments Are a Good Way to Postpone Payments
Although deferments are available, it's not always a good idea to use them, especially if interest continues to accrue during the deferment period.
Public Service Loan Forgiveness Provides Immediate Relief
A job in a recognized public service field can help lower the overall expense of a student loan by offering forgiveness, but it takes 120 payments, typically ten years, before the loan forgiveness occurs.
Interest Rates Are Set and Non-negotiable
Interest rates on any loan can be renegotiated in order to recognize changes in the national economy since the loan was taken out.
Filing for Bankruptcy Eliminates Student Debt
Filing for bankruptcy is never a good idea if it can be avoided, and bankruptcy does not affect student loans. As a matter of fact, bankruptcy lowers a credit rating making it harder to earn the money required to pay off a student loan.
A Job will be Immediately Available to Pay Off Student Debt
College does not guarantee a great job, or any job, upon graduation. It's not uncommon for recent graduates to live with their parents and work a part-time job just to make ends meet. What's important is for the student to keep up the job search and understand they will eventually find a higher paying job than they would qualify for without their higher education degree.
Student loans allow for capable people to obtain college degrees regardless of their background or upbringing. The most important means of paying it off is for the graduate to stick to the plan and make payments on time, or contact the credit union to discuss any problem which may arise.
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