Debunking The 5 Biggest Student Loan Myths

With the gradual approach of summer, this year's batch of new graduates is gearing up to toss their caps and mortarboards, set gifted flowers in water, and deposit any congratulatory checks. For seniors who have yet to land their first job out of school, any dollars thrown their way will likely come in handy.

A decent-paying gig provides a way to handle one constant in post-grad life: student loans. About 40 million Americans are in student loan debt so you're in good company if you are, too. Just make sure you understand the right way to pay it off.

A recent survey from Student Loan Hero showed most borrowers harbor a lot of misconceptions about how to handle the debt, from believing you're automatically off the hook of paying off your loans if you can't find a job after graduation, to thinking that student loans don't impact your credit score. Ahead, we address the top-five areas that leave borrowers bewildered.

Misconception: Private student loans can be eligible for Public Service Loan Forgiveness.

Qualifying for the public service loan forgiveness (PSLF) program is notoriously difficult, even for graduates with federal loans who believe they're a shoo-in. It's not only a matter of being, generally, a public servant or nonprofit worker — you have to have taken out the right kind of loan and made the right kinds of payments along the way, as Ron Lieber uncovered in The New York Times. That's all if the program even exists in the future.

"We can’t make any guarantees about the future availability of PSLF," the U.S. Federal Student Aid office admits. "The PSLF Program was created by Congress, and Congress could change or end the PSLF Program."

But the answer to whether private education loans are eligible for PSLF is in the name itself — although 71% of people Student Loan Hero surveyed had the wrong idea. Private student loans are not eligible for public loan forgiveness, nor can they be consolidated into a Direct Consolidation Loan.

Misconception: Student loan payments are automatically based on income.

The federal government offers four income-driven repayment plans, which are eligible for most — though not all — federal loans made to students. This option is not automatic, though; borrowers must apply for it (the application process is free). Otherwise, federal student loans start on the government's Standard Repayment Plan — a fixed monthly payment of at least $50 for up to 10 years.

Misconception: You don’t need to worry about accruing interest on unsubsidized student loans while still in school.

Direct subsidized loans are available to undergraduates students with demonstrated financial need, and the U.S. Department of Education will pay the interest on those loans as long as a student is enrolled at least half-time, during the six-month grace period after leaving school, and during a deferment. But direct unsubsidized loans (which don't require demonstrated financial need) accrue interest "during all periods."

Per StudentAid.gov: "If you choose not to pay the interest while you are in school and during grace periods and deferment or forbearance periods, your interest will accrue (accumulate) and be capitalized (that is, your interest will be added to the principal amount of your loan)."

Misconception: If you put your federal loans into forbearance, they’ll stop accruing interest for a set amount of time.

Sorry, but no. There are two main ways of temporarily suspending or reducing your student loan repayments: deferral and forbearance. The options are very similar, with the defining difference being about interest itself. With deferment — not forbearance — you may not be responsible for paying the interest that accrues on certain loans. (The loan types that generally waive interest during deferment are on the Federal Student Aid website.)

During a forbearance, however, "you are responsible for paying the interest that accrues on all types of federal student loans," the office explains. "When you are responsible for paying the interest on your loans during a deferment or forbearance, you can either pay the interest as it accrues, or you can allow it to accrue and be capitalized (added to your loan principal balance) at the end of the deferment or forbearance period."

Misconception: If a student dies, both their federal and private loans will always be discharged.

Federal Student Aid, a division of the U.S. Department of Education, explains that federal student loans and will be discharged if the borrower dies (after an official death certificate is submitted). PLUS loans taken out by parents can also be discharged if a parent or student (for whom the loan was obtained) dies.

But the rules are more complicated for private student loans. Private lenders may seek repayment from a borrower's estate after they die, and in other cases, cosigners may be liable for repayment of the debt — right away. Heather Jarvis, a student loan expert, told USA Today that "the death of the borrower or the cosigner can trigger default [which] means the entire balance becomes due immediately, even if the surviving signer has always made payments on time.”

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