Student loans are a great way to pay for college, but they can also be a headache if you’re not careful. These are some of the dangers of student loan debt that you should know about.
Student Loan Forgiveness Scams
Student loan forgiveness scams prey on people who are desperate to get out of debt or need help finding ways to pay it off. These scams can be costly and even dangerous.
Avoid student loan forgiveness scams by researching your options before making any decisions, and keep in mind that there may be multiple ways to obtain student loan forgiveness. Don’t give up if you are scammed; report it to the FTC (Federal Trade Commission) or your state attorney general’s office as soon as possible.
Mismanagement Of Partial Payments
There’s a big difference between partial payments and full payments. If you make a partial payment, that doesn’t necessarily mean that your loan balance is going to decrease.
It may increase or stay the same, depending on whether the amount of money you pay will cover all your interest for the month and still leave enough left over to continue paying down the principal. That can be a good thing if it means paying off loans faster by making more than one payment each month—but beware: it can also end up costing you more money in interest if your loan has an especially high rate of interest.
Your best bet with partial payments is when they’re applied toward loans with low rates of interest—like Stafford Loans (6%) or Parent PLUS Loans (7%). These loans are designed so that even small amounts of extra cash can make big differences in how quickly they’re paid back.
Dishonesty About Student Loan Prepayment
One of the best things you can do to pay off student loans faster is to prepay your student loans. While that might sound like a no-brainer, it’s not as easy as it seems.
There are several ways to prepay your student loans, but all involve paying more than you owe each month. The reason for doing this is twofold: avoiding interest and getting a lower payment.
If you’re motivated by saving money on interest, then paying off your debt early could be a good option—but only if you have enough cash flow to cover both principal and interest payments every month until your loan term ends (which could be ten years or more). If not, then it’s better to just stick with the standard repayment plan and pay extra when possible or when financially feasible for you.
Misrepresentation of Late Fees
Late fees are a common scam, and they’re not always legal. They may not be based on the actual cost of the loan, since that would make them seem more expensive than they are.
They can also be a sneaky way to make more money for lenders, who often end up charging late fees for things like online account access or check payments. It’s easy to avoid paying these extra charges—just pay on time.
Overpaying Your Loans
Paying more than the minimum is great, but you need to know how much you can afford. If you have other financial obligations, like a mortgage or car payments, be sure to take them into account before deciding on an amount.
You also need to have a plan for paying off your loans as quickly as possible. Make sure that any extra payments are going towards reducing the principal of your loan and not just adding time onto the duration of it.
Don’t be afraid to ask questions and do some research in this area if necessary; even if it seems confusing now, learning about student loan repayment will help you avoid making mistakes down the road.
Mismanagement Of Partial Payments
The first type of danger is partial payments. When you make a partial payment, the lender can choose to keep that money and apply it to the next month’s payment.
This can be especially dangerous for borrowers who are trying to pay down their debt quickly. If they made regular full payments but then fall on hard times, they might have no way of picking up where they left off because their lender has already spent their money elsewhere.
The lender can also choose to apply your partial payments toward interest rather than principal, which means that you are paying off more interest over time instead of paying down more principal (the amount you owe). The third option that lenders have is applying your partial payment toward the principal balance—which is good news.
This doesn’t always happen when it should. Sometimes lenders fail to apply funds correctly when they’re given money in one lump sum or by automatic draft from an account like your checking account or savings account.
Issues With Automatic Payments
You can set up automatic payments on your student loans to save you from the hassle of writing a check every month. But there are some downsides to having this feature:
- If you pay too much or too little, it might not be applied properly.
- You won’t know when your payment is due until after it’s been late. This is especially problematic if you’re on an installment plan but forgot to change the date of your next payment when applying for deferment or forbearance.
- Canceling automatic payments may not cancel all of them(particularly if they were set up through different lenders).
Student loans are a great way to get the education you need to succeed in life .It’s also important that you know what you’re getting into and how these loans will affect your finances in the long run. The dangers we’ve outlined above may seem scary, but if you keep them in mind when making decisions about your education or loan repayment process then chances are good that things will go smoothly.