Like any other debt, student loans can be stressful. It is an unpleasant feeling to be in a huge debt that can’t be paid off at once. In the United States, it is important to understand how student loans and bankruptcy work. There are numerous myths surrounding bankruptcy and student loans, and you have probably heard a few. Private student loans have been greatly misunderstood, leading to poor decision-making when seeking student financing. There are numerous myths about private student loans and bankruptcy that need debunking if you have to consider private student loans. You may need to consult a bankruptcy lawyer to understand private student loans and bankruptcy. This article aims to debunk the myths surrounding student loans and bankruptcy, addressing the confusion and challenges associated with their financial aspects.
Myth 1: Borrowing as Much as You Can Get
When borrowing, take student loans that you need and remember they should be paid in time. Avoid the temptation of exhausting the loan limit just because it is there. The risk of financial burdens in the future is high with student loans and it is even worse when you borrow just because you could get more.
Myth 2: Bankruptcy as an Option for Struggling with Repayment
Before your request is granted, you need to file for Chapter 7 or Chapter 13 bankruptcy or consult a bankruptcy lawyer in louisville. Until recently, bankruptcy was not an answer to repaying private student loans. However, with undue financial difficulties proven, it is possible today. Before filing for bankruptcy, you need to exhaust all the other options. Bankruptcy as an option adversely affects your long-term credit status and may not necessarily mean your student loans are discharged. To have your private student loans discharged, you need to prove that the debt is causing you undue financial hardship. It is always challenging, so you should contact your lender and inquire about available repayment plans or assistance during financial distress.
Myth 3: Private Student Loans are Always Expensive than Federal Loans
While federal loans to undergraduate students have low-interest rates and offer borrower protection, PLUS loans for students and loans to parents could have higher interest rates than private loans. Even unsubsidized federal student loans could be more expensive than private loans.
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Myth 4: Private Loans Mean Forever for Co-Signers
Private student loans may offer a cosigner release option, allowing cosigners to be released after a specific period or after meeting certain repayment requirements. This could range between a year to two years. The student loan should be repaid consistently for the period and you need to show you have the income and credit rating to support repayments and the cosigner release can be activated.
Myth 5: Student Loan Forgiveness is an Option
Private student loans have no forgiveness, unlike federal loans.
Don’t think you will be desperate and take student loans while counting on loan forgiveness later. You can enjoy other perks in private student loans but not loan forgiveness. For instance, you may receive job placement assistance or enjoy additional perks like discounts, happy hours, or airline miles.
Myth 6: A Low-Interest Rate is Always the Best Option
When taking private student loans, the interest rate should be a factor to consider. Also consider the loan term length, as the low-interest rate may have a long repayment period, hence ending up paying more. Unlike private student loans, federal student loans may have a higher interest but also more borrower protection. Private student loans may extend a longer period in repayment with a low-interest rate, which could be cumulatively more expensive.
Myth 7: Student Loans Have No Impact on Credit Score
Similar to credit cards and mortgage payments, student loans, including private ones, impact your credit score. With your loan repayment being reported by the servicers, it is good that you don’t fall behind as this could negatively affect your credit score. Consistent and reliable payment on your student loan will also likely improve your credit score as it shows lenders that you are a dependable borrower.
Myth 8: Student Loan Payment Can Be Stopped if Struggling
For private student loans, stopping to repay your debt because you can’t afford it and planning to continue repayment when financially stable may be a risk to your credit score. The delinquent payments adversely affect your credit score in the long term. Remember that private student loans require credit checks, and you should maintain a good credit status.
Myth 9: Income-Driven Repayment Plan is a Good Idea
Private student loan servicers mostly do not offer this plan. An income-driven student loan repayment program is based on your income and family size. In marketing terms, it seems an easier and a convenient option compared to a standard repayment plan. In reality, it only extends the duration of your debt and results in paying a significantly higher amount of interest through income-driven student loan repayment plans.
Myth 10: Deferring Payments Makes Your Life Easier
When you defer your student loan, it means you won’t have to make payments, but could still be responsible for the interest accrued depending on the type of loan. To qualify for deferment, you need to meet certain criteria, such as being on active duty military service or serving in welfare or in the Peace Corps. The loan deferment means you will still have to deal with it at a later date, which could be a financial catastrophe in the long term. It is even worse when you still got to pay the interest.
Wrapping Up
Dispelling these common myths about bankruptcy and private student loans can assist you in making informed decisions when seeking student loans. Also, understand that private student loans are debt like any other that must be repaid. Remember to maintain consistent and reliable repayment of your private student loans, as it affects your credit score. Although it is not yet widely recognized among private student loan servicers, demonstrating that the debt has caused you undue financial distress could potentially lead to the approval of a bankruptcy request. Remember you have to satisfy Chapter 7 or Chapter 13 bankruptcy before the process. Avoid deferring payments, as it adds to your loan debt and postpones repayment to a later date. By understanding these myths and the facts surrounding them, you can make informed decisions regarding private student loans.
