After studying and working hard for years, students enter the workforce anticipating that a degree will start paying off. Instead, many students are stuck paying off student loans.
Whether you’re a parent, potential student or recent graduate, you have probably encountered one or two of these myths before.
Myth 1: Bankruptcy will clear my student loan debt.
Students generally don’t have any assets that can be claimed in bankruptcy court, which makes declaring bankruptcy for student loan debt a lower risk for graduates and a higher risk for banks. To allow students the chance to dismiss student loan debt would give present an opportunity for abuse within the bankruptcy system.
NOTE: In some extremely rare cases involving parents unable to work and other extreme cases, student loan debt may be considered in bankruptcy court.
Myth 2: If I’m struggling financially, I have no option but to skip a payment.
In those early days after graduation, when you’re using your business degree to manage a women’s shoe store or coffee shop, your income may not be as stellar as you hoped. Lenders offer terms of forbearance and deferment for borrowers who run into financial problems. These terms will suspend your obligation for a set amount of time.
Keep in mind that there is a limit to the number of times you can rely on these terms, and you will also be subjected to the interest that accrues during this time period.
Skipping a payment can wreck your credit score! Even if you don’t foresee any financial problems, you should familiarize yourself with the options offered by your lender in the case of an emergency.
If your income is simply not enough to cover the costs of your student loans, you may be eligible for a lower income-based repayment plan that will lower your monthly minimum payment. Check with your loan service provider to find out if you are eligible.
Myth 3: My interest rates and balances are non-negotiable.
If you conduct a little research, you may find that your lender offers lower rates for borrowers who meet certain conditions or enroll in certain programs. Consolidation is also another option, but borrowers need to carefully calculate whether the new interest rate will truly be lower than the original ones.
Graduates who hold federal student loan debt are eligible for loan forgiveness programs if they enter careers of public service . Once 120 months (ten years) of payments are made, the remainder of your student loan balance could be forgiven.
Regardless of your financial situation, you have options! Working with your loan provider can be intimidating, but it’s necessary to find a program that works for you.
This is a guest article by Karen Smith, a former newspaper reporter and globetrotter, now freelances for various publications and websites. She hopes to bring her readers the latest in business education at onlinebusinessdegree.org as well as up-to-date, informed advice on everything from careers to financial planning. Karen welcomes your comments below!