Financial Aid Myths
Setting the record straight with financial aid facts
When first dealing with the student loan process, it's easy to feel overwhelmed and maybe even a little confused by some of the different information that's out there. However, if you're aware of common financial aid myths, and are able to contradict them with relevant financial aid facts, student borrowing starts to feel less complex. Here are a few common myths along with the real facts about student loans.
Student loan myth #1: If I don't graduate, my student loan debt is erased
Financial aid fact: You'll still have to repay that debt, only now you may not have the same earning power to do so that you originally expected.
Student loan myth #2: In the event of death or bankruptcy, student loan debt is automatically forgiven
Financial aid fact: In the unfortunate event of the death of an individual with private student loan debts, that debt becomes the obligation of his or her estate. Similarly, declaring personal bankruptcy does not remove your legal obligation to repay your college loans. Be aware that the federal government can garnish your wages or withhold such things as tax refunds or Social Security payments to settle that debt. However, federal student loan forgiveness is sometimes available in the event of an individual passing away with that debt.
Student loan myth #3: Consolidating student loans isn't usually a good idea
Financial aid fact: Actually, if you have more than one outstanding student loan, it's generally a good idea to consolidate them at some point. Rolling them together creates a single payment under the best possible terms, including the lowest interest rate, you can secure. However, student finance experts say you generally should not, and in most cases cannot, consolidate federal loans, such as Stafford and Perkins loans, with loans from private lenders. Please note when federal loans are consolidated, the terms of those original loans are usually forfeited in favor of the terms of the consolidation loan.
Student loan myth #4: The funds for my student loans are directly deposited into my bank account
Financial aid fact: Actually, lenders will send the proceeds of any student loans directly to the school you're attending. None of that money will go directly to you, the borrower. That third-party certification process helps ensure that you'll borrow only what you need for your education.
Student loan myth #5: You're locked into loan repayment even if you can't afford it
Financial aid fact: Actually, depending on your discretionary income, you may qualify for income-based repayment options on federal student loans, which cap your monthly repayments at more affordable figures. You'll still be responsible for paying off your debt, but with smaller payments. It's important to note it will take longer to pay the loan in full, meaning you'll accrue more interest. If you are able to pay more than the cap at any point, you could put that payment towards the principal of the loan. Income-based repayment is based on your income, so if you get a raise, the amount you pay on your student loans will increase.
Student loan myth #6: Parents' poor credit ratings prevent students from getting financial aid
Financial aid fact: It is true that a parent's good credit history can help a student obtain loans for his or her education. However, what happens if the student's parents fail to qualify for PLUS loans? Students can still typically secure subsidized Stafford loans on their own that carry no credit requirements. They can also consider applying for private student loans and asking a relative with better credit to act as a co-signer.
Ask Citizens Bank to untangle any other financial aid myths
At Citizens Bank, we work to make the student loan process straightforward for parents and students. That's why we provide tips, information and suggestions to help with student borrowing. If that doesn't answer all your questions, just contact one of our helpful student loan specialists at 1-888-411-0266.