When it comes to pursuing higher education, there's no shortage of information, advice, and, unfortunately, myths about student finance. As aspiring students and their families navigate the complex landscape of college funding, it's crucial to separate fact from fiction.
In this comprehensive guide, we
will dive deep into 15 common student finance myths, debunking misconceptions
that could potentially shape your academic and financial future. Whether you
are planning to attend college or already enrolled, it's time to demystify the
world of student finance and make informed decisions that can lead to a
brighter, debt-free tomorrow.
What Are the Top 20 Student
Finance Myths?
While preparing yourself to get
a student loan for your higher education, you may have heard a lot of myths
about loans and finances. But no worries, all your doubts will be cleared in
the section provided below;
Myth 1: You Need to be Wealthy to go to university
The first and most common myth that you must have heard before entering college or applying for a student loan is you need to be wealthy to go to the University. But this is not true. You just need to maintain a basic standard of living and provide a guarantee statement that you will pay your loan debt back.
If you successfully do that,
then there is no way the University and the bank will deny to help you pursue
your further studies. Apart from the student loan option, there are a lot of
ways through which you can finance your education, even if you are not that
wealthy. You can finance your education through grants and scholarships.
Myth 2: You Will We Paying Off Student Debt Your
Whole Life
Are you worried about taking student loans for higher education because you will have to keep paying your debt your whole life? Well, there is nothing to worry about at all. You will not have to pay debt throughout your life. It is a myth.
Even if you have taken a big loan, your debt paying period will depend solely on your loan type. If you have taken a government loan, then the paying period will eventually wipe out after 30 to 40 years of paying. This clearly indicates that you will not have to pay till the moment you grow old. However, the situation, terms and conditions can differ. If you have taken a loan from a private lender, then the time ratio may change.
Overall, the average student
loan repayment period is approximately ten years. However, there are many ways
to shorten your repayment period, such as making extra payments or refinancing
your loans.
Myth 3: US and UK Student Debt is the Worst in the
World
Yes, the loan interest in the US and UK are high as compared to other countries, but that doesn’t mean that you will have to stake all your money to keep paying your loan and its interest.
Majorly, all student loans are
funded by the government. But if you have taken a loan from private lenders,
you may face difficulty paying back the money. However, the lenders may provide
you with some other alternatives or considerations.
Myth 4: The More the Debts, the Higher You Pay
If your University/ tuition fee is high, then you will graduate with more debt. But you will not have to pay more. Instead, you will pay less than other previous students because you are not obliged to pay based on the debt you have but based on your current earnings.
If you are taking more debt for
your education, then it means you are pursuing your education from a good
University. So, after completing your education, you will get highly paidjobs in USA, and if you have a good job,
you will earn more and have to pay according to your earnings.
Myth 5: You Have to Start Paying Back Your Student
Loans As Soon As You Graduate
This is one of the most common myths that you have heard before or during taking a student loan. But this is entirely false. You will have to pay your debts, but not as soon as you complete your education. Instead, you will have to start paying after getting a good job and a salary over the repayment threshold.
While taking a loan, the loan providing bank will provide you with some additional time. After you graduate, there is a grace period before you have to start making student loan payments. The grace period varies depending on the type of loan.
In case you drop out of your
University during the mid-term, then you will have to immediately repay the
loan that covers the remaining part of the term.
Myth 6: Student Loan Debt Will Ruin Your Credit
Score
This myth is completely false. Student loan debt will not ruin your credit score; instead, it can actually help your credit score if you make your payments on time. However, if you miss payments, then your credit score will be negatively affected.
But no worries, the student loan
debt will not show up on your credit score report. So, after completing your
education, if you want to take a loan for your house, then you can easily do
that. The only way the loan provider will know about your student loan is if
they ask you about it during the loan application process. The main reason
behind finding out about your student loan is because they want to check out
your net earnings.
Myth 7: You Can't Get a Student Loan If You Have
Bad Credit
You may have to face some difficulty in getting a student loan with a bad credit score. But it is not impossible. You can apply for the loan if you have the proper documents and other essential required things.
There are many student loan
options available for students with bad credit. But you may have to pay a
higher interest rate or get a cosigner. However, these options solely depend on
your loan provider’s repayment
terms and conditions.
Myth 8: The Government Keeps Changing The Loan’s
Interest Rate
Getting a loan is not an easy task, but understanding the loan and its interest rate can be the toughest. But no worries. We are here to guide you.
When you see changes in your
loan’s interest rate, then is understandable that you will blame the
government, but that’s not true. The government does not change the interest
rate at its convenience. As mentioned earlier, understanding the loan and its
interest rate is a topic that can give you a headache. It is natural to react
and blame the wrong party.
Let’s understand the topic in
detail. The government may charge RPI+ some percentage on your loan as an
interest rate. However, the RPI amount can increase or decrease over time on
its own. So, when you see the interest rate has been increased, that means the
percentage the government has charged is the same, but the RPI has gone up with
inflation.
Myth 9: Debt Collectors Will Come If You Don't
Repay Your Student Loan
No debt collectors will come to you if you fail to repay your student loan installment in any month.
If you are jobless or earning below the threshold, then you will not have to pay your loan debt till you are earning well. Along with that, you are not responsible for paying your debt on your own either.
If you have a good job and earn well, then every month, the debt money installment will automatically be deducted from your salaried account. However, it is advisable to keep an eye on your bank statement and payslip to make sure that the bank is not over-charging you or deducting your money way too early.
In case you are self-employed and doing some sort of business, then your debt amount will be calculated when you file a self-assessment tax return.
All these situations state that
you will only be charged to pay your debt when you are capable of paying. And
it simply means that you will not be haunted by any debt
collectors.
Myth 10: You Do Not Have to Repay Your Student Loan
If You Move Abroad
We all have wished this statement to be true, but it is entirely false. No matter where you move or stay, if you are earning more than your repayment threshold, you cannot escape from paying off your debt.
So, before you move to some other place, you will have to let your loan financier know the place you are shifting to. Apart from that, you will also have to set the repayment amount with them based on your current income.
If you move abroad without
settling these things, then your loan debt will keep adding on. This means once
you return to your place, you will have to pay all the backlogs or round figure
amount. So there is no way to escape.
Myth 11: You Can't Refinance Your Student Loans
Do not panic; this statement is wrong. You can refinance your student loans to get a lower interest rate or shorter repayment term. However, it is important to compare different refinance offers to find the best one for you.
Just search your preferred bank,
make a visit, and check out the interest rate along with other terms and
conditions.
Myth 12: You Can't Get Highest Paid Jobs If You Have Student Loan Debt
This is a myth you must have heard while pursuing your higher education. But this is absolutely false. If you are taking a student loan for your studies, then you must be going to a good University. And after passing out from a good University, you will surely get a good job and a high salary based on your skills.
So, no need to panic or have a
doubt. Just study hard, work on your skills, and you will get a good paying job
through which you can repay your loan debt.
Myth 13: You Should Pay Off Your Student Loan As
Soon As Possible
This statement is entirely wrong. Paying off your student loan early or late is something that completely depends on you. However, there is an advantage of paying the amount early. By settling your debt early, you can reduce your interest amount. In some cases, there are chances that you will have to start paying off your added interest before the debts get over.
So, by paying the debt amount
early, you may get the disadvantage of paying more money that you would not
need to pay.
Myth 14: Your Parents Have Nothing to Do With Your
Finances at University
No, whether you are eligible to get a student loan or not mainly depends on your parent's income. The government will only decide and sanction your loan if your parents have a stable and good income.
According to a recent Student Money Survey, more than 51% of parents pay the initial student loan debt. Many of the students do not pay a single penny to repay the loan because their wealthy parents make all the repayments.
Myth 15: You Can't Retire If You Have Student Loan
Debt
Your retirement has nothing to do with your student loan debt. If you are not able to work anymore, then you can retire even if you have student loan debt. However, it is important to plan for your retirement and make sure you have enough savings to cover your living expenses and student loan payments.
Even after retirement, you
cannot escape from your debt. You will have to pay it back at any cost, but
yes, you are not obliged to be trapped in something you do not like. You are
very much free to make your own decisions.
Myth 16: Your Student Loan Will Stop You From
Getting a Mortgage
Your mortgage application is slightly impacted by your student loan repayments. However, there is less chance that the provider will ever prevent you from obtaining a mortgage.
You will go through an 'affordability check' while applying for a mortgage. A mortgage lender will look at your monthly income and expenses to determine how much you can afford to pay each month. They will determine how much money to lend you based on that.
You will technically be able to make a lesser mortgage payment each month than you would if you had no student loans because your loan payments are deducted from your paycheck each month.
The amount you repay is,
however, incredibly negligible in the grand scheme of things. So, there is a
chance that there would not be any huge difference, and it would not affect
your ability to get a mortgage.
Myth 17: You Need to Pay for Master's Degrees
Yourself
Just like for your graduation degree, you can take a student/education loan to complete your post-graduation degree.
However, after completing your
graduation, if you are earning well or if your family can afford to pay for
your master's, then you should do it by yourself. But in case you cannot pay
for it, then you should go for a loan. The procedure would be similar.
Myth 18: You Can't Get Rid of Student Loan Debt If You Go Bankrupt
In most cases, student loan debt
gets discharged in bankruptcy. Until the situation is under control, you can
pause your payment and resume it soon after solving the problem. However, it is
important to consult with a bankruptcy attorney to discuss your options.
Myth 19: You Should Borrow As Much Money As You Can
For College
You should not borrow money as much as you want. To complete your education, you should not entirely depend on student loans; try to use some savings to avoid extra repayment because the more amount you take as a loan, the more time you will have to invest.
So, it is important only to
borrow as much money as you need for college. Student loan debt can be a
burden, so it is essential to be careful about how much you borrow.
Myth 20: You Can't Travel If You Have Student Loan
Debt
You can travel even if you have student loan debt. Your traveling has nothing to do with your loan. However, it is important to budget for your travel expenses and make sure you can continue to make your student loan payments to avoid any repercussions.
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