Don't fall for these 5 student loan myths

When it comes to student loans, separate fact from fiction and protect your finances. (iStock)

Student loans can help you get an education, but the terms and fine print can be confusing. Whether you’re talking with other students or trying to navigate the implications on your own, it’s easy to find—and believe—the misconceptions during and after you sign the paperwork.

Misinformation can be costly if you make mistakes with your loans. Instead, know the truth about these five student loan myths.

1. Myth: Always borrow the maximum amount

When you apply for federal and private student loans, you may be offered more than you need. It can be tempting to take the maximum amount—who doesn’t love upfront cash? But this might not be the smartest idea in the long run when you have to pay it back.

Rate-shopping marketplaces like Credible allow you to compare offers from multiple lenders at once and determine the repayment term and total loan cost. This will give you an idea of what loan amount you can handle.


You’re not obligated to take the full package in your financial aid award letter. Instead, calculate precisely how much you will need. Then, consider other ways you can get some financial help, including methods that don't have to be repaid, like scholarships and grants or a part-time job for extra income. Or choose a less expensive school.

A large loan amount will result in a larger monthly payment. Credible’s online student loan calculator will help you estimate the total amount you’ll owe and identify your monthly payment. This will help you see how much the maximum amount will impact your budget later and compare it to your anticipated income.

Even if you're going into a field where you can apply for loan forgiveness, most programs require that you work several years to qualify. You’ll have to make your payments during that time, and only the remaining will be wiped away.

2. Myth: You should always refinance your student loans

Interest rates are at record lows, and current student loan rates may be lower than what you have. That means you should refinance, right? Not necessarily. While refinancing your student loan can lower your rate and your payment, if you have a federal student loan, you may want to stay the course.


To refinance federal student loans, you need to convert them into private student loans, which strips away the benefits you can get from federal loans. For example, you would no longer be eligible for a federal repayment plan, such as income-driven repayment, which lowers your monthly payment based on your ability to pay. You'd also waive your ability to participate in a Public Service Loan Forgiveness program. Be sure to consider the benefits federal loans offer before you refinance them away, and compare and shop around to choose the best offer if you do.

3. Myth: Federal student loans have the lowest interest rates

Federal and private interest rates are low right now, but just as the economy fluctuates, that is subject to change. Federal student loans usually offer the lowest rates, but if you have excellent credit, you may be able to get a lower interest rate.

Also, since private student loans are not need-based or subsidized by the federal government, you usually qualify for a higher loan amount. Having a single low-interest but bigger student loan balance may be more attractive for your financing goals for consolidation.


4. Myth: Don’t worry about paying back your student loans in school

Borrowers aren’t required to pay back student loans while they’re still in school, but it can be a myth to think it’s the best method for handling your finances. It may be smart to start making student loan payments while you’re in school or in the loan’s grace period to decrease the overall amount of the loan.

Even small payments, such as $25 a month, can cut down on your accrued interest and decrease your student loan balance, making it more manageable later. You’ll be doing your future self a favor if you can afford to start the repayment plan sooner, and hopefully avoid having trouble paying it back later.

5. Myth: I’ll never pay off my student loans

If your student loan balance is substantial, paying it off can feel overwhelming. The average undergraduate degree loan amount is $29,000, according to the College Board. Graduate degree loans are much higher, with the average master's degree student loan balance being $55,200, according to the National Center for Education Statistics, and doctorate loan amounts going into six figures.


Even though a standard student loan term is 10 years, it can feel like you’ll never get to the finish line. But you have options. If you have loans, you can apply for an income-driven repayment plan. You can also refinance to reduce the total amount of interest you’ll pay. Be careful not to extend your term, though. Otherwise, you'll push the end-date out even further. And one of the most effective methods is reexamining your budget and creating a plan to pay off your loan ahead of schedule.


The best time to start thinking about paying back a student loan is before you take it out so you can avoid making a mistake or believe student loan myths. If you’re considering taking out private student loans to help pay for college, visit an online tool like Credible to view a rates table.