Student loan debt is one of the biggest barriers to homeownership for millennials. Despite the ability to afford a monthly mortgage payment, many first-time home buyers are unable to buy a home because of their inability to save for a down payment due to student debt repayment.
Responsible student loan debt management is the first step toward being able to purchase a home. One of the first steps toward responsible student loan debt management is to stop believing these student loan myths.
1. You’re stuck with your interest rate.
You have the opportunity to secure a lower interest rate with student loan refinancing. If you have built a good credit score, typically 680 or higher, and are in good standing with your loan repayment you can apply for a student loan refinance with the same or another lender. Underwriting criteria will vary based on the lender who issues your student loan refinance. If you do not qualify for a student loan refinance on your own, a qualified co-signer could help you qualify.
2. Everyone is eligible for student loan forgiveness.
The “Obama Student Loan Forgiveness” program, unfortunately, does NOT exist. However, there is a Public Service Loan Forgiveness Program for eligible federal student loans, but not private student loans. According to Forbes, some of the qualifications for Public Service Student Loan Forgiveness includes “student borrowers who are employed full-time in an eligible federal, state, or local public service job or 501(c)(3) non-profit who have made 120 eligible on-time payments over 10 years and are enrolled in a federal repayment program.”
3. Applying to multiple lenders for refinance will lower your credit score.
Just like when you are shopping for a car, “interest rate shopping” inquiries made during a short period of time, within 30 days for example, will have little to no impact on your credit score. In fact, applying to multiple student loan lenders for a refinance can actually improve your chances for approval. Shop around within a specific time frame to find the best interest rate for your student loan refinance.
4. There is an early payoff penalty.
While some loans have a penalty for paying off early, your student loans do not. In some cases, extra student loan payments can help you save on costly interest. Before making any extra payments toward your student loans it is best to run the numbers or consult a financial advisor to see which payoffs would benefit you the most.
5. Federal student loan consolidation will lower your interest rate.
One of the most common student loan myths, is that federal student loan consolidation will lower your interest rate. When federal student loans are consolidated, the interest rate is equal to a weighted average of each loan’s existing interest rate, rounded up to the nearest 1/8%. So, this interest rate may be lower than the interest rates on some existing loans, but it will be higher than others because it is an average. If you are seeking a lower interest rate, you should consider a student loan refinance instead.
Although student loan debt is one of the biggest barriers to homeownership, responsible repayment and management is one way to better position yourself for homeownership. If you have any questions about how your student debt will impact your ability to own a home, give us a call.