Bad Advice about Borrowing for College

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By Dori Zinn

January 15, 2019

Borrowing money for college is a major catch-22: You might not be able to afford college without student loans. But, when it comes time to repay the student loans, you might not be able to afford the loan payments.

Taking out student loans for college can be helpful and necessary, but not all advice about borrowing is good advice. Here are a few pieces of bad advice you can ignore.

1. Borrow to the limit

If you don’t have a lot of cash, maxing out your student loans might give you some extra spending money. In theory, it might sound like a good idea: Borrow to the limit so you can use the leftover money from the financial aid refund to buy whatever you want.

But, remember you will have to pay that money back later with interest. Every dollar you borrow will cost about two dollars by the time you repay the debt. Only borrow what you think you’ll need to pay for tuition, books, and room and board. If not, it could cost you so much more in the long run.

2. You don’t need to apply for financial aid

You won’t know how much financial aid your family will get without filing the Free Application for Federal Student Aid (FAFSA). But, you won’t get any aid if you don’t apply.

Completing the FAFSA gives you insight not only into qualifying grants and scholarships, but your financial aid award letter provides information about your student loan eligibility as well. The award letter may include subsidized loans, if you demonstrate financial need, as well as unsubsidized loans that are available to anyone without regard to financial need.

3. Don’t worry about repayment

For many student loans, you don’t have to worry about repayment while in college. But, not all student loans have this option.

Some private student loans require repayment while you’re in school. Even if a student loan does not require payments during the in-school and grace periods, interest may be accruing and will be added to the loan balance. Keep this in mind as you’re borrowing what you need, not what you want.

And while you might think you qualify for student loan forgiveness, you’ll have a host of hoops to jump through to get it. Even income-driven repayment plans that forgive the remaining debt after a couple decades only provide this benefit to borrowers who make the required monthly payments on-time and who are not in default on the debt.

Avoiding student loan payments can set you up for major financial failure. After 360 days of non-payment, your loans will enter default. Once your loan goes to collections, you’ll owe the entire loan in full, rather than the monthly payments set up after graduation. Collection charges of up to 20% will be deducted from your loan payments before the remainder is applied to interest and principal. The federal government can seize your income tax refunds, garnish up to 15% of your wages and offset up to 15% of Social Security benefit payments to repay your defaulted student loans.

Having a loan in collections will crush your credit score. This can hurt your chances of borrowing money for anything later on, whether it’s a car loan or a mortgage for a house. Even if you do qualify, you will be charged a much higher interest rate and fees.

Not paying back your loans means you’re showing lenders you aren’t responsible with money. This allows them to deny you a loan or give you a loan with a hefty interest rate.


4. You can refinance your student loans

Refinancing your student loans might be a good idea, depending on your financial situation. But, it’s not always the best idea for everyone. While it combines your loans into one manageable payment, your interest rate is based on your credit score. If you don’t have a great credit score, your interest rate might be higher than what you pay already.

If you have federal student loans, refinancing strips your chances of qualifying for student loan forgiveness programs. If you work in a field that allows forgiveness, refinancing might not work for you. You will also lose the other benefits of federal student loans, including income-based repayment, any federal forgiveness programs, an option to pause payments, and more.

Remember that refinancing extends the life of the loan. Because you’re taking out a new loan in place of a bunch of loans, you’re starting with a “fresh” loan. Instead of paying off your loan in the standard 10 years, you could be paying it off for 20, 25 or 30 years, depending on the loan terms. You’ll also be paying more in interest over time due to having lower monthly payments.

If you want to have one easy payment every month, consider consolidating your federal loans. You can also ask your lender for unified billing, where multiple loans are billed on a single monthly statement.

Are you following bad advice about student loans?

Just because you’re getting advice doesn’t mean it’s good advice. Research your options before signing up. Take everything you hear with a grain of salt.

If you’re unsure about your options, talk to a student loan or financial aid professional. Make sure you’re getting the most up-to-date, unbiased information you can.

A good place to start:

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