Most students have to borrow student loans to go to college. But very few know anything about them. That’s pretty scary considering you’re likely to take on several tens of thousands of dollars in debt. And making mistakes with that much money could cost you just as much.
Take it from me. I borrowed six figures to get a doctorate to work in a notoriously low-paying field. And thanks to taking advantage of years of deferments, forbearances, and an income-based plan designed to help borrowers with high debt and low income, I now owe twice what I originally borrowed.
Don’t make my mistakes. Instead, learn about the most common student loan borrowing and repayment errors. That way, you can avoid an overwhelming amount of student loans and get out of debt faster.
Student Loan Mistakes to Avoid
Most student loan borrowing and repayment mistakes deal with misunderstanding what you’re borrowing, how interest works, how to pay off debt quickly, and how to avoid default. Steer clear of these top mistakes to ensure you borrow smartly and don’t end up in over your head.
Mistake 1: Applying for Aid at the Last Minute
The Free Application for Federal Student Aid (FAFSA) is the gateway to qualifying for all financial aid of any kind. That includes federal grants and student loans as well as state grants and most institutional aid — the grants, scholarships, or loans offered by your school.
The FAFSA opens for applications every Oct. 1, and you must complete it by June 30 before the academic year you need aid for. You must complete a new FAFSA every year you plan to enroll in school.
Many colleges and universities also require additional forms, such as the CSS profile (short for the College Scholarship Service profile), which dives even deeper into your family’s financial situation. So check with the financial aid office to find out what they are, and stay on top of deadlines.
But note that states and colleges have limited grant resources. And those resources tend to go to the students who apply early. In other words, they’re first come, first served. So the earlier you get your applications in, the better.
And while the federal government is unlikely to run out of education loan funds, if you miss the FAFSA deadline, you’ll have to resort to private loans, which are costlier and feature less favorable repayment options.
Apply as early as possible to ensure you get as much grant and scholarship aid as you can qualify for. The more grants you can get, the fewer loans you’ll need to borrow.
Mistake 2: Borrowing Too Much
It’s possible to borrow every cent you need to finance your education anywhere you want to go to school. But it’s crucial to ask whether you should. Getting in over your head with student loan debt can have catastrophic consequences. I’m living proof.
I needed a doctorate for my original career plan of teaching college. But few college professors earn enough income to manage the types of monthly payments I had along with other living expenses. That’s how I ended up in the deferment-forbearance cycle.
And it’s not easy to get out of.
Thanks to a loophole in the Public Service Loan Forgiveness Program I was counting on and how colleges operate, my teaching position doesn’t qualify me for forgiveness. Additionally, discharging student loans in bankruptcy is currently so difficult it’s nearly impossible. And settling federal student loans isn’t any easier.
The first step to reducing overwhelming student loan debt is to exhaust every other means of paying for college, including scholarships, grants, and work-study. Search online for scholarship aid using a national scholarship database like Fastweb.
And never count on options like the Public Service Loan Forgiveness Program. Historically, the government’s made it nearly impossible to get. Do your homework to increase your chances of getting it and apply for it if you qualify. But don’t base your student loan repayment strategy on it.
Additionally, consider less expensive colleges. State schools tend to give most students the best value. It only matters where you go to college for a select few graduates, such as those looking to build connections with specific financial or law firms.
Finally, do a cost-benefit analysis. I found out the hard way all degrees don’t pay off, so as much as you want to pursue your passion, it might not be worth it financially.
Search sites like Glassdoor or PayScale to find out how much you can reasonably expect to make in your chosen field and compare that to the cost of school. As a rule, don’t borrow more than you can expect to earn as your annual salary your first year out of school. That ensures you can pay it off in 10 years or less.
Mistake 3: Not Understanding How Loan Forgiveness Works
Historically, the Public Service Loan Forgiveness Program has been notoriously difficult to qualify for. The program was overhauled in the fall of 2021. But until then, only 2% of applicants who believed they qualified had their loans forgiven.
Much of that is likely due to bureaucratic mismanagement, hence the overhaul. However, the mismanagement led tens of thousands of borrowers into making payments under the wrong repayment programs.
On Oct. 6, 2021, the government announced Temporary Expanded Public Service Loan Forgiveness, which allows previously nonqualifying payments to be counted toward loan forgiveness as long as those payments are certified before Oct. 31, 2022.
But moving forward, it’s crucial that borrowers are clear about the rules of loan forgiveness. You don’t want to find out after 10 years that your application is ineligible and you have to start all over.
To qualify for loan forgiveness, you must:
- Have Federal Direct Loans. Private loans don’t qualify for forgiveness, nor do other types of federal loans, such as Perkins loans. If your federal loans aren’t direct loans, you can consolidate them into a direct loan to qualify.
- Work Full-Time for the Government or a Nonprofit. Payments only qualify while you’re employed full-time for an American federal, state, local, or tribal government or qualifying 501(c)(3) nonprofit organizations. That includes military service, Peace Corps, and AmeriCorps but excludes labor unions and partisan political organizations.
- Enroll in an Income-Driven Repayment Program. No other repayment options qualify. But even if your income is so low your calculated payment under the plan is $0, being enrolled qualifies you.
- Make 120 Qualifying Payments. They don’t have to be consecutive, but they must qualify, meaning you have to make them under an income-based plan.
- Submit the Forgiveness Certification Form Regularly. You must fill out and submit a Public Service Loan Forgiveness Program certification form yearly and each time you switch employers. While not required, doing so ensures the payments you’re making qualify for forgiveness and allows you to make any changes you need to before you’ve made too many nonqualifying payments.
See all the rules at StudentAid.gov.
Mistake 4: Taking Out the Wrong Type of Loan
There’s more than one type of student loan. But it’s generally best to exhaust your resources for federal aid before turning to alternatives.
That said, while rare, some students may find the caps on how much you can borrow in federal direct loans don’t cover the total cost of attendance.
Fortunately, graduate students and parents of undergrads can borrow PLUS loans up to the total cost of attendance. So there’s no need for many students to resort to other sources. If that’s not an option for you, students can sometimes borrow from their state government or the school they plan to attend.
But the primary source of alternative loans for student borrowers is private student loans from banks or credit unions.
Federal student loans almost always win out over private student loans because of their lower fixed interest rates, flexible repayment options, borrower protections, and the potential for forgiveness.
But if you’re planning to borrow PLUS loans and definitely won’t qualify for the Public Service Loan Forgiveness Program, it’s worth it to find out whether you could get a better deal on a private loan if you have excellent credit.
If you decide to borrow private student loans, always shop around for the best loan you can qualify for.
Private lenders compete for your business. So going with the first lender you find could mean leaving a better rate on the table.
Use a comparison site like Credible, which matches you with prequalified rates from up to eight lenders with only a soft inquiry on your credit report, which doesn’t affect your credit score. That way, you can compare all your student loan options in one place.
But it’s not only interest rates that should matter to your bottom line. The best private student loan companies offer various borrower perks in addition to low rates.
For example, most lenders reduce your interest rate when you enroll in autopay. And some reduce your rate even further with loyalty discounts for doing other business with them, such as opening bank accounts or taking out personal loans.
Some lenders also offer perks for specific borrowers, such as special payment plans for medical and dental students during their residencies. And some even offer unique perks like free financial coaching or career planning services.
Just remember to read all the fine print so you know exactly what loan terms you’re agreeing to before you sign. For example, it may lack options for deferment if you fall on hard times or a co-signer release option. Don’t be lured by a shiny interest rate on its own.
Mistake 6: Not Understanding How Variable & Fixed Interest Rates Work
The rate is only one piece of the interest puzzle. How that rate works also affects how much accrues over time.
For example, all federal student loans come with fixed interest rates set each year by law. That means the rate stays the same for the life of the loan, which could be a good or bad thing, depending on the interest rate during the year you borrowed.
But some private student loans have variable interest rates. These fluctuate with market conditions. Although the variable rates are generally the lowest offered rates, it’s because the borrower is assuming the risk that the rate won’t go up, which is likely if you take 10 or more years to repay your student loans.
If you already have a variable-rate private loan, look into refinancing to a fixed-rate loan while rates are low.
And once you start making payments, contact the student loan company to find out if there are any ways to lower the interest rate, like signing up for an autopay discount.
Mistake 7: Not Understanding Interest Accrual & Capitalization
Another factor to consider is when the interest begins to accrue (accumulate). On subsidized federal loans, that doesn’t happen until after you graduate, leave school, or drop below half-time enrollment. Thus, whatever you borrowed is what you owe up until the day you’re no longer enrolled full time.
But interest on unsubsidized federal and private loans starts the moment you get the money. So on graduation day, you owe a higher balance than you originally borrowed.
Worse, that interest is capitalized (added to the principal balance as though it were part of what you borrowed) once you graduate, leave school, or drop below half-time enrollment. Since interest accrues according to the principal, that means you’ll then be earning interest on the interest.
Fortunately, you can reduce or even eliminate the burden interest can cause. Make small monthly interest payments while you’re still in school. That ensures none accrues and capitalizes on graduation.
If you have to, take on a part-time job. As long as you keep it to part-time hours, it shouldn’t interfere with your studies, and a well-chosen college job comes with numerous benefits, like teaching you the money management skills you need to pay off those loans after college.
Mistake 8: Co-Signing a Loan Without Understanding the Consequences
In some cases, a co-signer can help a student qualify for a loan or get a lower interest rate.
But co-signing their loan comes with a great deal of risk. You’re taking on equal responsibility for the loan. That means if they make a late payment or miss one entirely, it could impact your credit score. And if they default on the loan, the loan company will come after you for the balance.
And it doesn’t matter how responsible or well-intentioned the borrower is. No one can predict the future, and they could fall on hard times.
There are several programs designed to help people who have trouble paying back federal loans — if they enroll in them. But private lenders are especially hard to work with. Either way, there are risks associated with co-signing for a student loan.
If you do agree to co-sign, ask them to look for a company with a co-signer release option, which absolves you of responsibility for the debt after the student makes a certain number of on-time monthly payments.
If not getting help means they can’t attend college, a parent PLUS loan gives you more control than co-signing a private loan. You can borrow up to the total cost of their attendance, but the loan will be in your name.
If you want, you can still agree that they’re responsible for paying you back (though that agreement isn’t legally enforceable). Plus, if you experience financial hardship, you have access to federal repayment plans and borrower protections.
However, don’t sacrifice retirement savings or go into debt paying for your kids’ college. It could leave you unprepared, potentially placing a financial burden on them later.
Mistake 9: Putting Off Making a Repayment Plan
Many borrowers get lulled into thinking they can wait until after they graduate and their six-month grace period ends before they have to start worrying about their student loans. But you need to prepare your budget long before then.
A student loan payment could easily be $400 per month (maybe more). That’s a hefty chunk of anyone’s take-home pay. But recent grads won’t make as much as established professionals in any field.
And if you don’t think about it for the first six months post-graduation, it’s easy to establish a post-college life that doesn’t leave room for it, such as upgrading your apartment or buying a new car.
Before you graduate, find out what your monthly payment will be. You can check your student loan balance by creating a student account at StudentAid.gov.
Then, build the rest of your post-college budget around your monthly student loan payment. That ensures you won’t take on more financial obligations than you can afford. Unfortunately, that may mean living that ramen-eating college lifestyle for the first couple of years after you graduate.
Mistake 10: Choosing the Wrong Repayment Plan
The automatic student loan repayment schedule is 10 years of fixed payments, but it’s not the best option for all borrowers.
You don’t want to string out payments for decades unless it’s necessary. But income-driven repayment plans, which forgive any remaining balance after you make 240 to 300 (20 to 25 years) of qualifying payments, may be a saving grace for borrowers with high debt and low income.
And for those entering public service fields, an income-driven repayment plan is the gateway to the Public Service Loan Forgiveness Program, which forgives any remaining balance in as few as 120 qualifying payments.
But even if you stick to the standard 10-year plan, you still have options.
For example, you can repay your loans on a graduated plan, which lets you make smaller payments at the beginning. Your payments then gradually rise every two years. This plan is ideal for those who must start in a lower-paying job but expect their income to increase substantially as they gain work experience.
Use the loan simulator at StudentAid.gov to see how much you can expect to repay under different repayment plans. It shows your monthly payments, total amount owed, and any potential balance you could have forgiven under an income-driven repayment plan as well as the date you can expect to have your loans paid off.
Use this information to weigh your options. Ask yourself:
- Is it better to pay off your loans as quickly as possible by sticking to the standard 10-year plan? Is that realistic at your current income?
- How big will your payments be 10 years down the line if you opt for graduated repayment? Are you likely to make enough money for that to be practical?
- Is it better to make your current situation more manageable through an income-driven or extended repayment plan?
Lowering your monthly payment will have consequences since it means more interest will accrue. But the loan simulator can give you an accurate picture of what those consequences will look like.
Mistake 11: Only Making the Minimum Payment
The longer you sit on debt, the more it costs you thanks to the interest. So if you have any wiggle room in your budget, put whatever money you can toward your student loans to pay them off as quickly as possible.
Even small amounts can make a big difference.
For example, if you borrowed $40,000 in student loans at 6% interest, your monthly payment would be $444. But if you paid $500 a month instead — a difference of only $56 — you’d save $1,957 in interest and have them repaid a year sooner.
If you can, opt for a side gig or cut your expenses. Additionally, put any windfalls — like tax refunds, gifts, or inheritances — toward your loans.
But this is key: When you make any extra payments toward your loans, ensure you indicate the company should apply it to the principal. The more you pay down the principal, the less interest accumulates.
Mistake 12: Refinancing Without Considering the Pros & Cons
Refinancing is a common strategy for lowering the cost of debt, whether it’s a mortgage refinance or a student loan. But while refinancing can score you a lower interest rate, interest rates aren’t the only consideration.
When you refinance a student loan, you can only do so through a private refinance lender. That means you lose access to all the benefits of federal student loans, including federal repayment plans, borrower protections, generous deferment and forbearance options, and federal loan forgiveness.
It may still be worth it to you, depending on the rate you can get. But it’s crucial to weigh that against all you’d be giving up.
Even if the private interest rate is lower, the future is unpredictable, and you never know if you could need those federal benefits. And you’ll lose all access to federal loan forgiveness with a refinance.
On the other hand, if you have private student loans, there’s no reason not to refinance.
Mistake 13: Postponing Payments Unnecessarily
Both federal and private student loans have multiple options for deferment and forbearance. These allow you to temporarily suspend payments for various reasons, including full-time enrollment in school, economic hardship, military deployment, and serving in AmeriCorps.
Sometimes, deferment or forbearance makes sense, such as while you’re enrolled in school. But prolonged use of these options just increases your overall balance because interest keeps piling up.
Interest accrues on all but subsidized federal loans during deferments. And it accrues on all loans during forbearance. Additionally, that interest is capitalized (added to the principal balance) at the end of the deferment or forbearance.
Only use these options when absolutely necessary. And if possible, make interest payments during periods of deferment or forbearance to prevent its accrual.
If you’re deferring or forbearing for economic hardship and anticipate the hardship will last longer than a month or two, apply for an income-driven plan instead.
Depending on the severity of your situation, your monthly payments could be calculated as low as $0. And some plans don’t capitalize interest and even have interest subsidies, which means the government covers the interest on your loans for a specified period.
Additionally, those $0 “payments” count toward potential student loan forgiveness. But only periods of economic hardship deferment count toward the forgiveness clock. No other form of deferment or forbearance qualifies. And there’s a cap on how long you can defer for economic hardship.
Plus, if your financial situation changes, you can always change your repayment plan.
Mistake 14: Missing Payments
Missing payments can result in late fees. The student loan company tacks these onto your next month’s minimum payment. So if you had a hard time paying this month, it won’t be easier next month.
Plus, when you make your next payment, your money covers fees and interest before going toward the principal. So multiple fees could mean paying your principal down slower. And interest accrues according to the principal balance, so the higher you keep that balance, the more interest you pay.
Worse, if you miss enough payments, it can result in a default of your loans, which comes with severe consequences, such as damaged credit or wage garnishment or seizure of your tax refunds, Social Security benefits, or property.
There’s never a reason to miss a payment on a federal student loan if you’re facing financial hardship. Simply call the company and let them know. Depending on what you qualify for, you can choose from multiple options, including deferment, forbearance, or an income-driven repayment plan.
Private lenders are tougher to work with, as fewer repayment options are available. But many are still willing to work with you if you explain the situation. Most of the top lenders have limited programs for deferment or forbearance in times of economic hardship.
Mistake 15: Keeping Your Assigned Payment Due Date
Student loan companies allow you to adjust your monthly due date. That can be helpful if you’re having trouble stretching your dollars from one paycheck to the next.
Plus, if your bills are anything like mine, most of them are due at the same time of month. Thus, if you get paid biweekly, adjusting your due date to a different time of the month can make things easier.
If you want a different due date, contact the company handling your student loans and ask if you can adjust your due date to one more beneficial for you. You may even be able to change it through your online account.
Ensure you get confirmation of the new date in writing. That protects you if you get hit with any late fees in error. Additionally, ask when the new date takes effect. It could take a billing cycle or two, depending on the lender.
Mistake 16: Falling for Student Loan Scams
Many borrowers have reported receiving phone calls, emails, letters, and texts offering them relief from their student loans or warning them federal forgiveness programs will end soon if they don’t act now.
But the services these scam debt relief companies offer usually steal borrowers’ money or private information rather than grant any actual relief.
Other student loan scams take fees for helping students apply for income-driven repayment plans or consolidate their loans. However, borrowers never have to pay to sign up for any federal repayment programs. They only need to contact the company in charge of their loan.
In general, if someone contacts you, avoid giving them any personal information. No matter who they claim to be, either tell them to send their request in writing or say you’ll call them back. Then verify their story by contacting your student loan company at their listed phone number or through their website.
Additionally, never pay an upfront fee for student loan services. The government doesn’t charge application fees for any of their loan programs. They also won’t claim an offer is only available for a limited time since all the terms are set by law every year and are available to all students.
For more red flags to watch for, check out the Department of Education’s tips on avoiding student loan scams.
You are responsible for making all your loan payments whether you received the bill or not. Additionally, the lender in charge of your loan can change, and you need to ensure you’re able to receive that information so you always know who to contact about paying and managing your loans.
Thus, it’s on borrowers to ensure the company in charge of their student loans has all their current contact information, including mailing address, email address, and phone number. That’s especially the case if you moved after you graduated or listed a parent’s address on your application forms.
Log into your student loan account to ensure your contact information is current.
If you don’t know who services your student loans, check with your school’s financial aid office. For federal loans, you can always create an account on StudentAid.gov.
Then, each time you move, get a new email address or change your number, update that info with the company handling your student loans.
Mistake 18: Not Asking for Help
Paying off student loans can be overwhelming, especially if you’re dealing with low income or a large amount of debt. Depending on your circumstance, it could feel like you’re drowning and may never escape.
Trust me, I know how it feels. And I’m hardly alone. A simple online search reveals dozens of stories of borrowers who’ve consistently paid on their loans yet owe more than ever thanks to the compounding effects of interest, which often feels like quicksand.
But paying late or not at all only makes the situation worse. Damage to your credit report can make it difficult for you to rent an apartment, buy a car, or even get a job. And default can leave you subject to wage garnishment, steep collection penalties, and even lawsuits.
But hope isn’t lost. There is help. Resources exist for borrowers who need an extra hand.
The first step is to reach out to the student loan company. See if there’s a payment plan that’s manageable for you. Even if there isn’t, let them know what payment you can afford, and go from there.
If the company is uncooperative, contact the federal student loan ombudsman.
Borrowers can also reach out to nonprofit student loan counselors, such as the National Foundation for Credit Counseling or The Institute of Student Loan Advisors. These organizations work with borrowers to help them figure out the best strategies for dealing with their loans and overall financial health.
Alternatively, if you’ve reached the point of needing to settle your student loans or file for bankruptcy, seek an attorney who specializes in student loans. For private student loan help, try The National Association of Consumer Advocates. For federal student loans, search the American Bar Association.
The United States is currently experiencing a student loan crisis because of how the debt has impacted American lives.
It’s affected borrowers’ ability to save for retirement and buy a home. It’s also impacted people’s ability to start a family or even choose a job for passion over a paycheck.
And it can do so for decades. Many millennials who’ve entered middle age continue to face debt repayment. And many feel college wasn’t worth it as a result.
But you don’t have to be one of these statistics. I write about student loans precisely to help others avoid my mistakes. Learn from this list so you can borrow wisely and avoid overwhelming student loan debt.