Are you one of the 44 million Americans currently paying off a student loan?
Carl Carlson, CEO of Carlson Financial, shed some light on common student loan myths.
Forbes recently published an article detailing 10 student loan myths that could be costing borrowers a sizable amount of money. Carlson noticed that there are a lot of myths concerning student loan consolidation and refinancing in particular.
Carlson said these are two completely different strategies. Student loan consolidation won’t lower your interest rate; it allows you to bundle multiple student loans together, so that you’ll only have to make ONE monthly payment. Consolidation is mostly used to simplify your monthly payments, not to pay less interest. That can be done through student loan refinancing.
When asked if refinancing would be the better choice between the two, Carlson said that's not necessarily the case.
He said you may be able to get a lower interest rate, but refinancing a federal student loan means you’ll no longer be able to utilize federal repayment options and other benefits like deferment or forbearance. He also said people really need to exercise due diligence about this.
Whether you choose the standard repayment plan, consolidation, refinancing or student loan forgiveness, you must exercise due diligence to make sure you’re choosing wisely and are aware of the consequences or implications each option carries. Maybe it’s better for you to pay the student loans off early; another myth is that there’s a prepayment fee to do so, but that’s not the case.
And as far as student loan forgiveness, another common myth is that it's totally "free." However, Carlson says that's not entirely true and mentioned that you might have to pay ordinary income tax on the amount forgiven.
