Whether you're taking out student loans for yourself or for your child, odds are that you've heard a lot of fact and fiction about the process. Here are three of the most popular misconceptions around taking out student loans.
Myth #1: Interest Starts Accruing Immediately Once You've Booked a Loan
Interest on your student loan won't actually start accruing until after your school disburses the funds. Schools determine their loan disbursement date(s)—which are often before the first semester begins—so check with your financial aid office as this will be the date on which interest will start to accrue, and not before. In other words, you won't save interest expenses if you wait until the last minute to book your loan. On the flip side, you could save yourself some stress by knocking out a CommonBond loan application today and enjoying the rest of summer.
Myth #2: If You Booked a Federal Loan Before July 1st, You Locked in Last Year's Lower Interest Rate
Interest rates on student loans reset on July 1st for the upcoming school year. For example, last year, federal rates on Direct Unsubsidized and Grad PLUS student loans were 6 percent and 7 percent, respectively. This year, rates increased to 6.6 percent and 7.6 percent on those loans for the 2018-2019 school year. If you booked a loan before July 1st, you may have thought you were locking in that rate—but unfortunately, the rate rise applies to all federal loans for 2018-2019. You might be surprised to find your interest payments are higher than you anticipated. But don't worry, you can still cancel your loan and look to private lenders for cheaper options. Check out Myth #3 for the reason why!
Myth #3: Once You've Booked a Loan, There's No Way to "Un-Book" It
If you borrowed federal PLUS loans, but later realized you either don't need all that money or can find a cheaper loan from a private lender, you can cancel all or a portion of your loan disbursement within 120 days of the date your school disbursed the funds. If you cancel your loan, you will have to return the money, but no interest or fees on the cancelled loan will be charged.
Getting an MBA loan? Check out how much you could save with CommonBond here.
Taking out student loans for a college undergraduate? Learn more about CommonBond here.