Common Financial Myths Debunked – Part 3: Student Loans

This is the third installment of our financial myth-busting series. Below, we’ll dispel some of the most common student loan myths. Be sure to check out the rest of the series.

There’s a lot of confusion surrounding student loans and you’ve probably heard a lot of myths. So to get you on track to the truth, let’s explore the false information currently out there.

Myth #1: I can’t get a student loan because I don’t demonstrate financial need.

While there are student loans based on financial need (like the Perkins loan or Subsidized Stafford loan), you don’t have to be strapped for cash to qualify for one. The Unsubsidized Stafford loan is available to anyone who would like to borrow money to pay for college.

Of course, the more financial need you have, the greater your chances will be of acquiring a greater amount of financial assistance in the form of scholarships, grants and loans.

Myth #2: Student loans are hard to get.

While it is true private student loans had become a bit more difficult to acquire for students and parents with higher incomes or lower credit scores (largely due to the financial crisis), on the whole, acquiring a student loan is one of the simplest types of loans to obtain. And now that all lending is to be handled through a school’s financial aid office, by speaking with an office representative and filling out the FAFSA, your chances of getting money for school are very high.

Myth #3: I can get rid of my student loan debt by declaring bankruptcy.

Many people ready to file for bankruptcy assume that in addition to eliminating credit card debt, they can get rid of their student loan debt. Unfortunately, student loans cannot be dismissed along with the other debt. So even if you decide to file, it’s important to know that you will still be responsible for paying your student loans.

Myth #4: Student loan consolidation will lower my interest rate.

Student loan consolidation is a way for borrowers to manage multiple loans with varying interest rates by combining them all into one lump sum with one rate. Borrowers usually decide to consolidate when doing so will result in paying a lower interest rate. However, consolidation does not equal a lower rate; it’s possible to consolidate multiple loans into one but end up with a higher rate of interest on the new principal amount.

Before you go about consolidating your student loans, be sure that you will, in fact, lower the total amount of interest you’re paying, otherwise it’s probably not worth it.

Myth #5: If I don’t make enough money after graduation, I’ll be stuck with my loans forever.

There are a number of programs available to help people pay off their student loan debt. These programs are typically called student loan forgiveness programs. For instance, the Public Service Loan Forgiveness (PSLF) program is designed to help those working in eligible public service jobs to reduce their Stafford Loans, GradPLUS loans and consolidated loans as long as they are switched to the Federal Direct Loan program.

Also, Equal Justice Works offers help for those who want to become public defenders. Or if you volunteer using your medical degree, you may have up to $50,000 forgiven with the help of the National Health Services Corps.

Millions of students take out student loans each year, yet still don’t understand what they’re all about. Hopefully, we’ve cleared up any misunderstandings so you can feel comfortable about participating in the process moving forward.

>> Read Common Financial Myths Debunked – Part 2: Mortgage Loans and Part 4: Credit