Many students are unaware of the ways student loans can affect their finances and credit history in the long term. Misconceptions about student loans have even become popular opinion, with the potential to ignite a financial disaster. In a 2018 survey conducted by Student Loan Hero, researchers found troubling findings on the lack of awareness students have about their loan terms. Among the most worrisome findings was that many college students perceive their likelihood of receiving loan forgiveness to be almost guaranteed.
If you have student loans, it is imperative to educate yourself on the terms and requirements of your loan to avoid potential financial disaster. The consequences of failing to make payments on your loan—such as going into default and experiencing wage garnishment—will negatively impact your credit score and relationship with your employer. Working with a skilled student loan debt lawyer is the best way to understand your options and enter the best repayment plan for your situation.
Common Misconceptions Borrowers Have about Their Student Loans
Although federal loans require students to participate in loan entrance counseling, most students don’t understand their loans. In many cases, the incorrect beliefs about loan terms and policies held by graduates can negatively affect their financial future. The most common misconception borrowers have about their student loans include:
- Accruing interest on unsubsidized loans doesn’t affect you while you’re in school. While interest doesn’t accrue on direct subsidized loans while a student is enrolled, it does for direct unsubsidized loans. Therefore, if you have unsubsidized loans, you may want to consider making small payments on these loans while you’re in school.
- Going into forbearance on your loans means they stop accruing interest for a period of time. This is a dangerous misconception, as all federal student loans will continue to accrue interest while in forbearance.
- Your monthly student loan payment is always proportional to your income. All federal loans are defaulted to a 10-year “standard” repayment plan. This standard plan does not factor in income, and the monthly payments are set in accordance with the amount you borrowed along with your loan terms. To have your monthly payments tied to your income, you’ll need to apply for an income-driven repayment program.
- During financial troubles, you can defer your loans with no consequences until you can resume payments. If you meet certain criteria, you can defer your loans. However, you are only eligible to defer payments for a maximum of three years.
Incorrect beliefs about student loans are dangerous. For example, students that believe putting their loans into forbearance will stop them from accruing interest are more likely to apply for this program when it is not necessary and accrue interest in the process.
Most Students Lack Knowledge about Student Loan Debt
In general, most students and graduates are mystified by student loans and describe themselves as unaware of the implications of student loan debt. In Student Loan Hero’s 2018 study, they found that 3 in 10 of student borrower participants said they did not research loan options before getting a loan, and of the ones that did, 24% of them spent less than 10 minutes reviewing their loan’s term and lender’s policies before entering the loan. Furthermore, the study found that 49% of students with loans were unaware of the interest rate on their loan and 10% did not know whether they had federal or private student loans.
These telling findings reflect the lack of education and borrower participation in the loan process and provide context for how dangerous misconceptions about loans have become popular. Many students are also unaware of how to process and understand the aid packages offered by their school’s financial aid office. If you are struggling to navigate your student loans pre- or post-college, it is imperative to seek professional guidance on the best loan terms and payment plan for your situation.
Graduates Inflate Their Chances of Receiving Loan Forgiveness
Of all the misconceptions students have about their loans, the notion that student loan forgiveness is a given is the most concerning. The majority of college students feel confident that their loans will be eligible for student loan forgiveness either through future legislation that has not been passed or through the Public Service Loan Forgiveness (PSLF) program.
However, these ideas are very troublesome given the facts of student loan forgiveness. Only 1% of people who apply for PSLF receive relief from the department of education, and this number is not expected to increase in the near future. Many graduates falsely believe that any public service job is eligible for the PSLF. However, this program only helps federal loan borrowers who work for specific eligible non-profits and public employers.
Work with a Skilled Arizona Student Loan Lawyer to Receive Essential Guidance on Your Student Loans
Student loans are complicated, and it can be challenging to educate yourself on all the variables and factors that go into a loan agreement. If you have found yourself in a situation where you are struggling to make your payments and don’t know what to do, it is essential to work with a skilled student loan lawyer.
At McCarthy Law, our attorneys are dedicated to helping students navigate the complexities of the student loan system. Under our student loan debt settlement program, our licensed attorneys negotiate with lenders to ensure our clients pay only a fraction of their original loan balance. To schedule a consultation with one of our skilled student loan settlement attorneys, call (855) 976-5777 or fill out our online contact form.
Kevin Fallon McCarthy
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