Biggest Misconceptions about Student Loans

By Victoria Robertson on January 24, 2018

Student loans are, in layman’s terms, a necessary evil. For many, the idea of taking out student loans is daunting and exceedingly stressful, but, for a majority of Americans, ultimately necessary to fulfilling a college degree.

Photo Via: Pixabay

So why is there so much confusion surrounding something so commonly used? If a majority of college students are graduating with debt, why are there still so many questions when it comes to student loans?

To help ease some of your minds and potentially help you to answer some of those overarching questions, we will go over some of the biggest misconceptions about student loans and set the record straight so you can feel more confident in your decisions.

First and foremost, I’d like to address the idea that taking out loans is a bad thing. While you definitely don’t want to borrow any more money than absolutely necessary, loans provide individuals an opportunity for an education that may not have another means of obtaining it.

On a personal note, my family fell in the majority when it came to financial aid in that my parents made too much money for any assistance from FAFSA, but made too little to assist me in my college expenses. This is, unfortunately, the norm for many college hopefuls. And, as a result, I took out my own student loans for my undergraduate education.

In my situation, there was no other way in which to pay for my college education, so private student loans helped me to achieve my goals. For others, there may be some money saved, but loans are necessary to cover the remainder of your education.

This is an important distinction to make. Taking out student loans should not necessarily be viewed as a bad thing. That being said, if you have the means, financially, to cover some of the cost of your education, do it. Student loans do accrue interest, so it will cost you less money in the long run to spend what you have rather than to borrow and pay it back later.

This brings me to my next point: that all loans are the same. This is grossly untrue, and can cause you far more trouble than you bargained for. More often than not, students are unfamiliar with the loan process and borrow from the first loaner that offers them money. Do not fall into this trap!

Student loans are so vastly different, and not every loan option will be right for you.

Infographic by Victoria Robertson via

At the height of it all, there are Federal and Private student loans. These are the two, broadest categories. From here, you can filter down into so many specific categories that differ in terms of repayment options, interest accrual, etc. No two student loans are the same, and no two lenders are the same, either.

For this reason, it is absolutely essential to research loans prior to committing to anything. It’s a giant misconception that loans don’t require research, as they will be tethered to you for a very long time upon your graduation. They are not to be taken lightly.

The more research you’re able to do on your student loans, the better off you will be when it comes time to pay them back.

I have heard countless horror stories about students that have mounds of debt and repayment plans that simply don’t align with their lifestyles. Had they put in the research on the front-end, the outcome would have been far different.

Don’t be afraid to really delve into your options. Ask the lenders as many questions as you can think of and then some. Ask your friends and family for advice and personal experiences. Learn as many of the key terms as you can. Don’t let unfamiliar terms slow you down, but rather, do some digging and learn the specifics so that you’re educated and prepared when it comes time to make a decision.

The bottom line is that choosing a student loan should be an educated decision. So don’t make it until you’re confident that all of your questions have been answered and you’re comfortable with all aspects.

Another common misconception regarding student loans is that you don’t need to make any payments while you’re in school. While this does depend on the loan that you’ve chosen, you will most likely be accruing interest while you are in school, which means that the overall cost of your loan is increasing as you attend your classes.

While you won’t need to make significant payments to your loan while you’re in school, you will need to pay down some of that interest to avoid a larger monthly payment when it comes time for graduation.

Some students have parents that contribute to that monthly payment (putting in a small amount of money every month depending on the interest rate) and others work part-time while in school in order to contribute every month.

Whatever your plan for repayment is, you’ll want to make sure you’re accounting for the time that you’re in school.

On this note, there is also a grace period (typically a couple months) following graduation in which you do not have to make monthly loan payments. Again, you will be accruing interest during this time, so you will still want to make those small contributions monthly to avoid increasing the overall cost of your loan.

This brings me to the next misconception: that, following the grace period, there is no other time in which you can defer loan payments.

This is not accurate. In fact, with many loan providers, you are actually able to enter a deferment or forbearance period in specific circumstances. What this essentially means is that in the event of financial hardship (that meets the requirements of your specific loan provider) or in the even that you return to school for graduate-level education, you can potentially postpone loan payments.

That being said, there are specific criteria that you must meet in order to utilize either of these options. In terms of forbearance, financial criteria differ from loan to loan, so you will want to speak to your personal provider in order to ascertain whether or not you qualify.

In addition, forbearance can negatively impact your credit score and ability to take out loans in other situations (i.e. house, car), so you will want to do so sparingly. In other words, this should be an absolute last resort.

When it comes to deferment, again, criteria vary with providers, but if you return to school, you can apply for deferment to avoid paying high monthly costs during your continued academic career. Whether or not this deferment is necessary or the best choice for you is up to your personal financial situation (and you can always speak to a representative when considering whether or not this would be the right decision for you if you’re unsure), but know that this may be an option available to you should you need it.

If you do choose to enter a period of deferment, you should continue making monthly payments (whatever amount is manageable for you) in order to prevent interest accrual rates from driving up your overall loan amount. Just like when you enter a grace period, deferment periods require you to pay down that interest, so keep that in mind as well! You will still be saving money, but it’s a misconception that you won’t have to make any payments until you graduate.

In addition, some deferment options do have time limits, so you can only go into deferment a specified number of times and for a certain period of time. So again, make sure to read the fine print and ask any questions you may have of your service providers so that you’re fully educated before making a commitment.

Next, and perhaps one of the most important misconceptions to speak to, is the idea that paying back your loans is impossible. It’s easy to feel this way upon graduating and finding yourself in thousands of dollars worth of debt. However, don’t allow yourself to become overwhelmed by this idea, because it simply isn’t true.

The bottom line is that there are resources out there for you to utilize. Federal loans, for example, offer income-based repayment options, for example. This option ensures that you will only ever pay a certain amount of your salary towards your loan so that your monthly payments are more financially feasible for you.

In addition, there are ways in which you can refinance your loans to turn your high, monthly payments into more manageable payments that work for you.

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Additional resources include employers that offer reimbursement or loan forgiveness programs, making larger payments or additional payments to your loans annually, and simply budgeting properly for your loan payments.

You can always speak directly with your loan provider for additional ways in which you can save money and pay back your loans faster, as the more you know, the more likely you are to find yourself in a situation in which your loans aren’t a financial hardship anymore.

Another misconception I’ve encountered recently is in relation to interest rates. While there is a lot of confusion surrounding these rates, as they can be very high overall, the most confusion surrounds this idea of “fixed rates.” Fixed rates are exactly that: fixed. Most loans are not fixed-rate loans (this will depend upon the loan you’ve selected), but a majority of student loans have variable rates that will increase or decrease over time.

If you have a variable interest rate on your loan, do not expect to make the same payment amount every month. If your interest rate increases, your payment should as well, otherwise your overall loan amount is increasing significantly.

You will want to take a look at your specific loans, but make sure that you are staying on top of the changes to your interest rates and adjusting your monthly payments accordingly. You do not want to lose track of that or, before you know it, you’ll have made many payments without chipping away any of the overall cost of your loan.

Last, but most definitely not least, I’d like to address the misconception that when you take out student loans, you’re stuck.

Many students turn to a very famous anecdote presented by former President Barack Obama, in which he mentioned having just paid off the last of his student loans. This anecdote coming from the most powerful individual in the country with an astronomically high salary not only highlighted the student debt issue, but also stressed out many loan holders that were only at the beginning of paying back their debts.

Yes, attending college is necessary for most fields nowadays. And yes, it’s true most students can’t afford high tuition costs on their own. But no, that does not mean that taking out student loans is the end of the world. And no, it doesn’t mean that you’re stuck in a never-ending cycle of loan payments.

As previously mentioned, there are many things you can do to cut costs to your loans. In addition, you are not alone when it comes to your loan accrual, and therefore, you are not alone when it comes to paying them back.

I won’t lie and tell you it isn’t stressful, or that it isn’t a process that takes time. But I will tell you, you are not stuck unless you act like it.

A student loan isn’t ideal, nor is it something students enjoy. However, these misconceptions are exactly that: misconceptions. Don’t fall victim to them or the ideology that having student loans makes you lesser in any way, because it doesn’t.

You are not alone, and your debts do not define you. They can be managed and, in time, be paid off so that you no longer have to worry about them. So as long as you budget accordingly, ask the right questions from the get-go and elicit advice anywhere you can get it, you’ll be just fine.

So put these student loan misconceptions behind you and move forward in your education with confidence. You’ll be glad you did.

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