5 Facts About Student Loans You Probably Didn’t Know

There are many misconceptions about student loans. Lots of people hate them, lots of people need them. The majority of people don’t understand every facet about them – and that can lead to problems.

Since student loans can be an important part of your financial future, you need to understand how to pay better for collegeand how pay off student loans quickly.

Given that there are over $1.7 trillion in student loans and the average graduate has nearly $36,000 in student loans, borrowers need to understand these facts to ensure they are making the best decisions. possible.

Share your thoughts in the comments -> did you know these facts about student loans?

If you’re not sure where to start or what to do, consider using a service like Crusher to help you determine your student loan debt. Chipper analyzes your loans and helps you find the lowest repayment plan and loan forgiveness options you qualify for. Check out Chipper here >>

1. The collateral for your student loan debt is your future income

When you buy a car and get a car loan, the car loan security is the value of the car. If you don’t make your monthly payments, the bank simply repossesses your car. The same goes for a house and a mortgage. You don’t pay your mortgage, the bank seizes your house.

So when you take out student loans, what do you think is the collateral? Just goodwill? No, the guarantee of your student loans in your ability to earn money in the future. If you don’t repay your loans, the lender (the government or the bank) can garnish your wages, garnish your Social Security, and even offset and take your tax refund.

This is the main reason why, for the most part, student loans are not easily dischargeable in the event of bankruptcy. Bankruptcy helps liquidate your assets to pay off your debt and cancel the rest if you really can’t pay it off. But with student loans, as long as you have the ability to earn, you have the ability to pay something. This is also the main reason why there is disability student loan forgiveness – you simply can’t earn any more money to repay the loans.

So, when you take out a student loan, you must calculate your return on investment (return on investment) and make sure you can repay the debt.

2. You can refinance federal student loans

There is a big misconception about student loan refinance. Many borrowers don’t think they can refinance their student loans to lower their payments, especially with private student loans. However, since 2009, the government has allowed borrowers to refinance their federal student loans…into private student loans.

Now, this does not make sense to many borrowers. If you rely on your federal student loans to income-tested reimbursement programs, or some type of rebate program, you should not refinance your loans this way. This is because you will lose access to student loan forgiveness programs and special features such as deferment and forbearance (including Covid-19 payment pause).

However, if you’re on the standard repayment plan and looking for options to lower your payment and interest, refinancing into a lower-interest private student loan might make a lot of sense. I recommend to use Credible, a marketplace for student loans. Like Kayak or Expedia, except for student loan refinance, Credible helps you get offers from multiple lenders after filling out a single form.

A special offer for College Investor readers – get up to $1,000 in gift card bonuses when you refinance your loans with Credible!

3. Parents who take out loans for their children owe the debt

One of the most frequently asked questions I get about student loan debt is: “I took out $30,000 in student loans to pay for my daughter’s college education. Now I’m 55 and nearing retirement, and my daughter can’t make payments because she doesn’t have a job yet. What are my options?“

When preparing to finance their college education, many parents mistakenly believe that if they take out student loans, their children must pay for them. This is incorrect and one of the most misleading facts about student loans.

If a parent takes out a loan, the parent is responsible for the loan – not the student. If the student cannot pay, the parents are responsible for the debt. Do you want to change your repayment plan? It may not be possible.

Parents should never take out student loans for their children. Going back to fact #1 – the security of the student loan is income. If the parent takes out the loan, the collateral is the parent’s income now, not the student’s.

If you’ve done this before and are having trouble, here’s your options for processing Parent PLUS loans.

4. If you haven’t graduated from college, you still have to pay back your loans

Too many students go to college to “find themselves.” It’s not a good idea. College is expensive. Life changes. In many of these stories, the student ends up dropping out of college to pursue a dream, with no degree and a pile of student loan debt.

The fact is, whether you graduate or not, you’re still on the line for your student loan debt. Just because you don’t finish doesn’t mean you have to pay back what you’ve already spent on school. I was recently talking to a woman named Sara, who went to college for a year and a half before deciding college wasn’t for her. She has racked up $45,000 in debt over that year and a half. She really wanted to become a dental hygienist, which required a few more years of vocational school, at a cost of $20,000 a year. She was looking for a way out of the original debt – but it wasn’t happening.

Whatever your post-graduate plans are, you need to pay off your debt. Vocational school can be a great option, but don’t forget the total cost of school after graduation. you still have to pay off your student loans even if you’ve dropped out of school.

5. Student loan co-signers are just as responsible as the student

Finally, when you co-sign a loan, including a student loan, you are just as responsible as the borrower. Parent, grandparent, family member, friends – don’t co-sign a student loan. If you really must, you must co-sign a student loan the right way.

When you co-sign a student loan and the student cannot repay the debt, you must repay the debt. In the worst case, if you co-sign a loan and the student dies, you may still have to repay the debt.

Even after graduation and the student is making payments every month, getting a co-signer release can be difficult. This means that you can still be dependent for the duration of the loan. It can impact your own credit score and even prevent you from buying a car or house in certain circumstances.

If you are unable to take out a student loan personally, you should not co-sign one. It’s the same thing.

If you’re considering refinancing your student loans, look for student loans that have a “co-signer release.” This option allows the co-signer to be removed from the loan after a set number of one-time payments. You can compare options like this at Credible for free.

Unfortunately, in cases where a borrower dies, the co-signer could also be responsible for the debt. That’s why it’s so important for cosigners to make sure there’s a term life insurance policy for the borrower just in case. We recommend that you get a quick quote at haven of life.

Bonus fact: where to get help

Even though I’ve said countless times that you can do it for free on StudentLoans.gov, there are still people who have asked me “that’s great Robert, but I still want to pay someone for me help – who can I trust?” That’s a good question, so who can you trust?

The basic starting point is to call your student loan officer and get help directly. They are literally paid by the US government to help you with your student loans.

Then you can do a lot yourself on StudentAid.gov.

Finally, you can consider paying an expert for help. If you’re not sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you build a solid financial plan for your student loan debt. Check The Student Loan Planner here.

If you need help, it might be a good idea to pay for it. Don’t pay too much and really know what you are getting.

Did You Know These Facts About Student Loans? Have you ever needed help with your student loans?