Despite the near constant publicity on student loans, borrowers have expressed confusion about the way student loans work. According to a recent survey, misconceptions about student loans ranged from a lack of understanding about interest rates to confusion about the available repayment plans. Ameritech Financial, a private document preparation company specializing in federal repayment plans, helps clients understand the available repayment options in the unique context of their own situation.

The survey illustrated a lack of financial literacy of student loan borrowers. Starting when they sign for the loans, student loan borrowers lack an understanding of how the loans work and how to minimize the debt burden. According to the survey, the majority of borrowers are only somewhat confident about their student loan knowledge. Certain knowledge is essential for successful repayments, such as knowing that payments are due after the six-month grace period ends, even if borrowers have not obtained a job by then.

"There are too many borrowers who are confused about the loans they took out to fund their college education," said Tom Knickerbocker, Executive Vice President of Ameritech Financial. "When school ends, they are usually busy looking for a job to cover those loan payments. Ironically, this often means they're not reading up on what actually happens during repayment or how to successfully manage their loans. Sometimes finding a job takes longer than the grace period for their loans, which can cause problems in repayment."

One of the most important things to understand is how interest works, such as when it accrues or when it capitalizes. However, following graduation, it's especially important to understand how repayment works. Borrowers should know what their monthly payments will be when repayment begins, and how long they will need to make those payments.

According to the survey, more than half of respondents think the Standard repayment plan that every borrower begins repayment in is based on income. That simply is not true; the Standard plan is a fixed payment plan that bases monthly payments on a 10-year payoff term.

However, if Standard plan payments are too high for borrowers, they can apply for a repayment plan that is based on their income and family size. There are several income-driven repayment plans (IDRs) available that, depending on income and family size, can calculate payments as low as zero dollars. They even end in forgiveness after 20 or 25 years if there is any balance left to forgive.

"It can be difficult to focus on student loans when you don't have a job yet and may not be expected to start making payments for several months," said Knickerbocker. "But we encourage borrowers to take the time to understand the basics of loan repayment so that they can determine whether they need to look into repayment options. At Ameritech Financial, we help clients look at their whole financial situation, and if they would benefit from enrollment in an IDR, we help them with the application and recertification each year."