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5 Common Student Loan Myths Explained

Life Events

Student loans are a major component and key player when it comes to a college education.

A college student walking to class

It’s no surprise that because of this there are several rumors and myths that have spread regarding student loans. Here are five myths to keep in mind, so you do not get caught in a financial farce.

1. Declare bankruptcy and your loans disappear.

Step one: Declare Bankruptcy. Step two: Get rid of loans. Step three: Profit? WRONG. Unfortunately declaring bankruptcy will not make your problems disappear – including your loans. While there is some truth to this rumor, declaring bankruptcy to eliminate your loans is incredibly hard to qualify. Here’s why: You must prove that you’re experiencing what is referred to as “undue hardship,” which means that you have no disposable income to pay off your debt and the loan payments are detrimental to both you and your dependents. Then if you get that far, your student loan debt may qualify for discharge. In some cases it is not discharged, but restructured – so you still have to pay it back [1]. Navigating this process can take a while, over which time you are likely using a lawyer to guide you through the ends and outs of the process. This is likely not the best avenue for you, so instead you should consider different repayment plans that will still allow you to financially support yourself.

2. Refinancing always makes it better.

Refinancing is not the answer to all of your student loan issues despite what some sources would like to say. The truth is that refinancing can work in your favor, it just depends on what kind of student loans you are working with. If you have mainly federal loans, refinancing isn’t the best bet for you even if it will provide you with a lower interest rate. By refinancing that federal student loan you will ultimately be turning it into a private loan which will make you unqualified for any federal payment plans that you could benefit from [2]. Be sure to weigh the pros and cons for your specific case before considering whether to refinance.

As with any loan, a student loan can have a positive or negative effect on your credit score based on your payment history. Make your payments on time to build your credit and strengthen your score.

3. You should always consolidate your loans.

Consolidated loans sound great in theory, especially if you have numerous loans. Consolidating those loans into one single loan and payment sounds a lot more convenient than making multiple payments and interest rates every month. This may help you as a short-term solution, but depending on your circumstance, you could be paying more through interest rates in the long-run [3]. If you merely want the convenience of one loan payment, then you are getting a consolidated loan for the wrong reason. You could lose the benefits provided by your individual loans, get locked into paying a higher interest rate, and as was mentioned before– end up paying more in the long-run. So before you consolidate your loans, try setting up automatic payments. If automatic loan payments alleviate your loan problems then consolidation isn’t the solution for you.

4. You don’t have to pay off your loans during school.

As with most of these student loan myth, it ultimately comes down to the type of loan. If your loans are federal loans, which are obtained through filing a FAFSA, then some of them (Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans) will not require you to begin making loan payments during school. Select federal loans allow a 6-month grace period after you either graduate or drop below half-time enrollment [4]. But for private loans, loans obtained from a banking or private institution, the time in which you have to pay them off will vary from institution to institution. It comes down to the specific terms of the loan.

5. Student loans don’t affect your credit score.

This is false. As with any loan, a student loan can have a positive or negative effect on your credit score based on your payment history. However, when you defer a loan payment it does not affect your credit score. Ultimately you are still going to be making payments on that loan, it will just be delayed. Make your payments on time to build your credit and strengthen your score.

Don’t let these myths leave you under any illusions. It’s important to make your decisions based on only facts when it comes to your student loans.


[1] Discharge in Bankruptcy, Federal Student Aid
[2] 3 Times Refinancing Your Student Loans Is A Bad Idea, Forbes
[3] Student Loan Consolidation Information, U.S. News
[4] Understanding Repayment, Federal Student Aid


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