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Five Easy Student Loan Mistakes to Avoid

Whether your are making great money or just getting by, if you are careful, you can avoid some common student loan mistakes.

Written By: Michael P. Lux, Esq.

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Today we will take a look at five common student loan mistakes that are relatively easy to avoid.

The unifying theme with these simple mistakes is that all borrowers can avoid them. A huge income or a vow of poverty is not necessary.

Don’t Sign Up for the Wrong Repayment Plan

Federal loans have a variety of repayment plans. It seems that every few years the government comes out with a new and improved option for Income-Driven Repayment.

However, the old plans have also stayed on the books. The end result can be a bit confusing because there are many options. The good news is that a bit of research can help borrowers find the best plan for any circumstance.

In most cases, borrowers should sign up for income-driven repayment plans. Even if you can afford a larger payment, you might still be better off signing up for a plan with lower monthly payments.

The classic repayment plan mistake is struggling to keep up with the standard 10-year repayment plan. Despite calls to change the rules, the starting repayment plan for all borrowers is the one with the highest monthly payment.

Regardless of where your finances stand, any responsible borrower should be aware of all of the plans available. Finding the plan that best fits your needs doesn’t take terribly long. It can also provide flexibility and get student loans eliminated quicker.

Sherpa Tip for Finding the Best Repayment Plan: If you have federal student loans, be sure to check out the Department of Education’s Student Loan Simulator. Borrowers can see all available repayment plans, monthly costs, and how long it will take to eliminate the debt.

Don’t Just Make Minimum Payments

This tip might seem at odds with the previous one. If signing up for lower minimum payments is a good thing, why would making minimum payments be a mistake?

The benefit of lower minimum payments is that it frees up more cash each month to attack higher interest debt.

The smartest way to pay off your student loans is to pick one loan and attack it. Pay down as much as possible whenever you have extra money. Most people elect to try and pay off their smallest loan or their highest interest loan. These approaches, known as the avalanche and snowball methods, can make debt disappear dramatically quicker.

Even if you can only afford a little bit more than the minimum payment, it can make a difference. In many cases, an extra $10 per month can make a noticeable dent in the loan.

Don’t Ignore Your Student Loans

Pretending student loans don’t exist is a huge mistake.

Ignoring student loans might temporarily receive a little stress, but while you ignore your loans, late fees and interest continue to pile up.

As noted earlier, for federal loans, there are many repayment plan options. These include repayment plans based upon your income. Many borrowers qualify for $0 per month payments. No matter how low your income, ignoring the debt is never a good idea.

There are several programs to help borrowers who cannot afford the bills that arrive each month. Between these hardship based options and student loan forgiveness programs, most borrowers can find a light at the end of the tunnel… if they just do a little research.

Don’t Spend Too Much on Interest

When you are trying to pay off debt, interest is your enemy.

Some people pay too much in interest by only making minimum payments. Others pay too much interest because they fail to take advantage of opportunities to lower their interest rate.

All borrowers should recognize that interest is the enemy in student loan repayment. Interest is how lenders make money.

If you can barely make payments on your student loans, some private loan lenders offer programs to lower your interest rate. These programs are not required by the loan contract. Instead, they are provided by lenders to help struggling borrowers.

On the other side of the coin, some people have a stable income and are doing fine with their student debt. Those in stronger financial positions can refinance their debt to around 2% interest. Over the life of the loan, this could result in a savings of tens of thousands of dollars.

Don’t Settle for Deferments or Forbearances

Like those who ignore their loans, people who rely upon a deferment or a forbearance are likely making a mistake.

Bills may not come each month, but that doesn’t mean that you are not charged interest each day. Except for very limited circumstances, a deferment or forbearance is a bad idea.

If you are struggling with your student debt, going this route makes your student loan problems grow.

Delaying payment means that the monthly bills will be larger when repayment starts. Most federal borrowers will be better off enrolling in an income-driven repayment plan rather than postponing payments. The income-driven plans like IBR, PAYE, and REPAYE all can have $0 per month payments, but it helps borrowers get started towards student loan forgiveness.

Avoiding Common Student Loan Mistakes

Student loan repayment can be scary and overwhelming.

Many borrowers want to think about it as little as possible, so they don’t get consumed with stress or dread.

In my experience, staying engaged with student loan repayment is the best way to avoid student debt stress. Many borrowers are surprised to learn about the opportunities they have to manage their debt. Finding that light at the end of the tunnel is a game-changer.

Staying on top of your student loan options also means you will avoid most common student loan mistakes.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

3 thoughts on “Five Easy Student Loan Mistakes to Avoid”

  1. I think that not knowing your student loan details is critical. You should always know your balance, your payoff date, your interest rate, and your monthly payments. If any of those things are things that you have to look up, you don’t know enough and could be making any number of associated mistakes.


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