Student loans can be confusing, especially with all the misinformation floating around. Recent changes to federal student loans, including new repayment plans and borrowing limits, have only made things more complicated. Some advice you come across might be outdated, while other advice is just completely inaccurate. Here are the most common myths around student loans to help you separate fact from fiction and make more informed choices about your student debt.
Myth 1: You can’t get a student loan if you have bad credit
Having bad credit doesn’t have to prevent you from getting a student loan. Most federal student loans don’t require a credit check at all. As long as you’re eligible for federal student aid, you can access student loans by submitting the FAFSA (Free Application for Federal Student Aid).
Private student loans do involve a credit check, which is why most undergraduate students (96%) and many graduate students (73%) apply with a cosigner. A cosigner is a parent or other trusted adult who shares responsibility for the loan.
Some private lenders offer no-cosigner student loans that rely less heavily on credit and more on alternative factors, like your school and major. These no-cosigner loans could be useful if you have weak credit and are applying on your own, but they may have higher interest rates.
Myth 2: You shouldn’t pay off student loans while you’re in school
Federal student loans and most private student loans let you postpone payments while you’re enrolled at least half-time in school and for six months or so after you graduate. This grace period is helpful for students who are focusing on their studies and not yet earning an income.
However, unsubsidized federal student loans and private student loans start accruing interest from the date of disbursement. This means your balance is quietly growing while you’re working toward your degree.
If you want to cut down on interest and reduce your borrowing costs, you could choose to make partial or full payments while you’re in school. Many private lenders offer the option of interest-only, $25-per-month, or full payments to student borrowers.
Myth 3: You have to pay a fee for paying off your student loans early
There’s no penalty for paying off federal or private student loans ahead of schedule. Even if you have a 10-year, 20-year, or longer term, you can always make extra payments to get out of debt faster.
Making extra payments can also save you money on interest. You may need to instruct your loan servicer to apply the payment toward your loan balance rather than saving it for a future bill.
Myth 4: Graduate students can no longer borrow federal student loans
Graduate students can still borrow federal student loans, but their options are more limited as of July 1, 2026. The One Big Beautiful Bill Act (OBBBA) eliminated the Grad PLUS program and adjusted borrowing limits for Direct unsubsidized loans for graduate students.
If you’re a new graduate borrower after July 1, your options are:
- Up to $20,500 per year with $100,000 aggregate limit for graduate programs
- Up to $50,000 per year with $200,000 aggregate limit for professional programs
- No more Grad PLUS loans, which previously let you borrow up to your school’s cost of attendance, minus other financial aid received
If you’re already in graduate school and borrowed before July 1, you’re considered a legacy borrower. That means you can keep borrowing Direct unsubsidized loans and Grad PLUS loans under the old rules for three more years or until your program ends, whichever comes first.
Myth 5: New federal student loan borrowers have lots of repayment plans to choose from
July 1 also brought major changes for student loan repayment plans. New borrowers after July 1 now only have two repayment plans to choose from:
- New tiered Standard Plan, which spans 10 to 25 years, depending on how much you borrowed
- Repayment Assistance Plan (RAP), which spans up to 30 years and calculates your payments as a percentage of your adjusted gross income
If you borrowed before July 1 though, you have more options. You can use the new plans or keep accessing the old repayment plans, including the old standard plan, extended repayment, graduated repayment, and three income-driven repayment plans. Note that the SAVE plan is no longer available and two other income-driven options, PAYE and Income-Contingent Repayment, will be eliminated by July 2028.
Myth 6: Parents can borrow Parent PLUS loans up to their child’s full cost of attendance
In previous years, parents could take out Parent PLUS loans up to their child’s cost of attendance, minus other financial aid received. As of July 1, Parent PLUS loans have a new annual limit of $20,000 per student and lifetime limit of $65,000 per student.
Parent borrowers who took out loans before July 1, 2026 can stick to the old rules for three more years or until their child leaves school, whichever comes first.
Myth 7: Public Service Loan Forgiveness (PSLF) is going away
While there have been major changes to the federal student loan system, the PSLF program has not been affected. The program still offers federal student loan forgiveness after 10 years of eligible public service and 120 on-time payments on a qualifying repayment plan.
There have been changes to income-driven repayment plans, though, so if you’re working toward PSLF, review your repayment plan to make sure your payments qualify.
Myth 8: Private student loans always have higher interest rates than federal loans
Private lenders offer a range of fixed and variable rates on private student loans, with some starting lower than the rates on federal student loans. For instance, creditworthy borrowers may access rates as low as about 2% on a private student loan, whereas federal loan rates are currently fixed at 6.52% and higher.
Plus, many private student loans don’t charge origination fees, whereas federal loans come with fees of 1.057% or 4.228% of your loan amount, depending on the type of loan. At the same time, private student loans don’t typically offer as many protections as federal loans, so it’s usually wise to borrow federal loans before turning to private loans.
Private student loans also don’t qualify for federal loan forgiveness programs. But if your priority is getting the lowest interest rate possible, it’s worth shopping around and comparing your options.
Myth 9: Private student loans require immediate payments while you’re in school
Most private lenders let students postpone payments while they’re enrolled at least half-time in school and for several months afterward. Undergraduate students usually get a six-month grace period after they graduate, whereas certain graduate students may get nine months, 12 months, or longer.
A common exception is private loans for parents, which often require interest-only or full-payments right away after the loan has disbursed.
Myth 10: There’s no way to release your cosigner from your loan
Many students apply for private student loans with a cosigner to get approved and access better interest rates. A cosigner is equally responsible for the loan, and their credit can be impacted by how the loan is repaid (on-time payments can build credit, while late payments can drag it down).
But the cosigner doesn’t have to stay on the loan forever, as many private lenders offer cosigner release to qualifying borrowers. You can often apply for cosigner release after you’ve made a certain number of payments or a specific period of time has gone by.
You’ll also have to pass a credit check and meet other credit requirements. Besides cosigner release, another option for removing a cosigner is refinancing the loan in your own name.
Myth 11: Consolidating and refinancing student loans are the same thing
While the terms consolidating and refinancing are sometimes used interchangeably, they refer to two distinct processes:
- Consolidation: Consolidation is a federal process that involves replacing one or more of your federal student loans with a Direct Consolidation Loan. Consolidation can simplify repayment, but it won’t lower your interest rate. Your new rate is simply the weighted average of your previous rates, rounded up to the nearest one-eighth of a percent. Federal loan consolidation is also one way to get student loans out of default.
- Refinancing: Refinancing involves replacing one or more of your student loans (federal or private) with a new loan from a private lender. The main goal is to lower your interest rate, but you can also restructure your debt with new terms and simplify repayment by combining several loans into one. You’ll need to meet a lender’s requirements for credit and income to qualify for student loan refinance.
Consolidation keeps your loans in the federal system, whereas refinancing gets you a new private student loan. If you refinance any federal loans, you’ll lose access to federal benefits like income-driven repayment and forgiveness programs.
Myth 12: It costs money to consolidate or refinance student loans
There’s no fee to consolidate or refinance student loans. You can apply for consolidation for free on the Federal Student Aid website or for refinancing directly with private lenders. If someone charges you a fee to consolidate or refinance, you may be paying for something you can do on your own for free or dealing with a student loan scam.
Myth 13: Refinancing student loans is always a good idea
Refinancing student loans can be beneficial for some borrowers, but it’s not for everyone. If you’re relying on a federal repayment plan, forgiveness program, or other benefit, it wouldn’t be a good idea to refinance your federal student loans.
This is because refinancing federal loans means losing access to federal plans and programs, and the process is not reversible. Make sure you’re comfortable with this tradeoff before refinancing any federal student loans.
On the other hand, it could make sense if you don’t need federal benefits and can qualify for a lower interest rate. It may also be worth considering if you have high-rate private student loans and can get a better rate and terms.
Make sure you understand the pros and cons of refinancing student loans before you apply.
Understanding your student loans
The federal student loan system recently underwent a major overhaul, and advice that was accurate prior to July 1, 2026 may no longer apply today, especially to new borrowers. Before you take out a loan, refinance existing loans, or pick a repayment plan, make sure you understand your options and how the latest changes might affect you. By learning about student loans and staying up-to-date on federal policies, you can avoid common misconceptions and make informed decisions about paying for your education.
