1. Myth: Consolidating student loans lowers your interest rate.
When you consolidate student loans in the Federal Direct Loan Consolidation program, the interest rate on your new loan is fixed, and the new rate is equal to a weighted average of the interest rates of your existing loans, rounded up to the nearest one-eighth percent.
2. Myth: Student loan forgiveness is always available if needed.
Federal student loans are the only loan types that qualify for student loan forgiveness. To receive it, you must enroll in an income-driven repayment plan that caps your monthly payments based on your income.
3. Myth: You can skip a student loan payment if needed.
If you’re facing financial hardship, contact your student loan servicer immediately. You can’t just skip a payment without making an arrangement.
4. Myth: Federal student loans have the lowest interest rate.
With federal student loans, everyone receives the same interest rate, regardless of your credit. Therefore, they aren’t necessarily offered at the lowest interest rate.
5. Myth: It costs extra money to pay off your student loan early.
Student loans don’t have a prepayment penalty, which means you can pay this type of debt off anytime with no fee.
Article adapted from BALANCE financial education resources.