With several myths about student loan repayment floating around, it can often become difficult to separate fact from fiction. Here are two of the more common student loans repayment myths that college students believe in because they offer some sort of hope. Unfortunately, believing in these falsehoods can cost you considerably.
Myth 1: Student loan forgiveness programs are a great solution for most borrowers to wipe out their debt
Fact: Students with both, average income and average student loan debt are not likely to have any outstanding debt to be after 20 years of payments.
The way student loan forgiveness works is that you have to make payments for 20 years. Any loans outstanding after that are forgiven if you participate in this program.
This may sound great, but when you do the math, you are likely to find that most college graduates would actually be able to clear their student loan debts within 20 years of starting the repayment. This is true regardless of the kind of repayment plan the college graduate opts for.
College graduates who benefit from student loan forgiveness programs are those who meet these two criteria:
- They are saddled with gigantic student loan debts, amounting to about $100,000 or more
- Their earnings after graduation are not enough to help them clear their debts even after a 20-year period
Forgiveness programs also benefit certain professionals as stipulated under the conditions of the program. These include doctors, lawyers, teachers who work in low-income schools, special education teachers and those who enter full time public service careers such as public defenders, correctional officers and law enforcement officers.
However, these are only a few careers that are eligible for forgiveness. The average college graduate does not really benefit from these programs. Taking on excessive loans in the hope that you will get them wiped out through a forgiveness program may not be the ideal solution for you if you are not interested in the careers that qualify for loan forgiveness.
Myth 2: Opting for income-based repayment plans is an easy way to repay student loans
Fact: While you can use income-based student loan repayment plans to repay your student loans, you usually end up paying more interest with this option.
In most cases, if you go in for income-based student loan repayment plan, you pay no more than 15 % of your income towards the repayment. While this is a useful plan for those college students who cannot make their loan payments in full, the interest keeps accruing on the unpaid balance and eventually increases the amount you have to pay.
Instead of saving you money, you will end up paying a substantially higher amount.
Word of advice regarding student loan repayments
Every repayment plan has its pros and cons. When you are exploring your repayment options and working on a plan that suits you, it is far better to speak to speak to your lender and get the facts first-hand from them. This way you will not fall prey to any myths and misconceptions and you will be able to make an informed decision regarding your repayments.
Use College Raptor to discover personalized college matches, cost estimates, acceptance odds, and potential financial aid for schools around the US—for FREE!