Why you should be concerned about most student debt counseling

Why you should be concerned about most student debt counseling

The average college graduate will walk away with at least five figures of student loans. For the class of 2016, for example, that figure is a whopping $37, 172, according to student loan hero. The last thing debtors need is bad advice that makes their debt burden even bigger.

When student debt becomes too much to handle, it’s easy to find yourself the target of questionable help from people who don’t have your best interests at heart. A “student loan counselor” may promise to help you navigate the murky waters and end up charging you a fee for a debt relief program offered through the loan servicer when you could have called it yourself and done it for free.

6 types of student debt counseling about

Here are common student debt myths that borrowers are often tricked into believing.

1. Always select the most favorable payment plan.

Requesting the cheapest payment plan you can get, which also extends the loan term, is more expensive in the long run and will saddle you with student debt for years to come.

A better option: sign up for a payment plan you can comfortably afford in the years immediately after college, and accelerate repayment of student debt as you climb the income ladder.

2. If you are strapped for cash, apply for deferment or forbearance.

Both options are available for federal student loans and give you a break from paying loans for a specified period of time.

Before deciding what you want, it is important to know the difference between these two options. With a deferral, no interest is charged on any subsidized loans from the federal government until you continue credit repayment. Loan suspension is less favorable: although payments are temporarily suspended, interest will continue to accrue on the loan. When you start making repayments, you will owe even more interest than before. But forbearance is also better than falling into arrears.

Use these options only as a last resort. Avoid the temptation to use it, for example, to free up money to finance a more expensive lifestyle; the credits will be available there immediately when the deferral or forbearance period has expired.

3. Don’t ask private lenders for repayment options.

It’s no secret that the U.S. Department of education offers a range of repayment plans. But did you know you can also have flexible personal loan options? If you’re struggling with your current payment plan for private student debt, contact your lender to see if affordable payment plans are available to you.

4. Consolidating your student loans will make life easier and save you money.

Consolidating your loans helps you minimize late payments, since you only receive one payment per month. This may not necessarily be a cheaper option. In fact, you may lose some of the benefits associated with certain loans and could be assessed a higher interest rate, making the loan more expensive.

You also know that the direct consolidation loan offered by the U.S. Department of education does not allow you to combine federal and private loans. And if you decide to combine both types under a private program, probabilities are you will pay a higher amount in interest. (see also student loan refinancing: the pros and cons and student loans: federal loan consolidation .)

5. When you take a public service job, your student loans will be automatically cancelled.

There is a public service loan forgiveness (PSLF) program available to those who have federal student loans. However, candidates must meet strict criteria to be considered, including:

  • Holding a position with a qualified employer
  • Make at least 120 payments under a qualifying repayment plan while working for a qualified employer

More importantly, only the remaining loan balance will be canceled once the PSLF occurs.

6. If you can’t afford your student debt, bankruptcy is an option.

Not true. Student loans are one of the few debts that cannot go bankrupt. If you’re thinking about signing up for chapter 7 to escape the burden of your student loans, you may want to look into other options.