“Unlocking the Hidden Truths: 14 Surprising Realities About Student Loans You Never Knew Existed!”
If buying a home is in your future, consider ways to improve your debt-to-income ratio. This could mean paying off other debts first or saving for a larger down payment.
10. Interest Capitalization Can Increase Your Balance
When unpaid interest gets added to your principal loan balance, that’s called interest capitalization. This can happen during deferment, forbearance, or even when switching repayment plans. After capitalization, you’re paying interest on a larger amount.
If you’re able, paying off interest before it capitalizes can save you money down the line. It’s another way to prevent that balance from growing behind the scenes.
11. Student Loans Don’t Go Away in Bankruptcy
Unlike other forms of debt, student loans are generally not dischargeable in bankruptcy. This means they stick with you, regardless of your financial situation. In rare cases, borrowers can prove “undue hardship,” but this is a difficult standard to meet.
This fact alone makes student loans a unique kind of debt, one that requires a different approach and mindset compared to other forms of borrowing.
12. Extra Payments Can Save Big
There’s no penalty for paying off student loans early, and making extra payments, no matter how small, can reduce your principal faster and save you a lot in interest. If you can swing it, even an extra $20 each month adds up over time.
The flexibility to make extra payments can shorten your repayment term and help you reach financial freedom sooner. It’s one of the easiest ways to cut costs without changing your lifestyle drastically.
