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Five Student Loan Mistakes to Avoid

Michael Lux Blog, Lower Payments, Student Loans 3 Comments

Dealing with student loans can be a scary and can be a challenge.  Unfortunately, if you are not doing your research, odds are you are paying more than necessary.  Here are five of the most common ways people make mistakes on their student loans.

1.  Signing up for the wrong repayment plan  

Federal loans have a variety of repayment plans.  Over the years new improved repayment plans have been offered to help borrowers out.  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.

The standard federal government repayment plan is the ten-year plan.  The ten-year plan is also the plan that has the highest monthly payments.  That means that a borrowers first student loan bill might seem impossible to pay.  If you have a tiny federal loan balance, this plan may work, but for most, it ends up being a very expensive option.  A recent federal government study showed that most people had selected the wrong repayment plan.

The good news is that there are also plans based upon what a borrower earns.  Rather than looking at the borrowers balance to decide the monthly payment, the Department of Education will take a small portion of their discretionary income.

Regardless of where your finances stand, any responsible borrower should be aware of all of the plans available.

2.  Only making minimum payments 

This is especially true for high interest loans.  If you are only making the minimum payment, the vast majority of what you pay each month is interest.  Paying down principal is the only way to make a loan disappear.  If you are only making minimum payments you are maximizing profits for your lenders.

The smartest way to pay off your student loans is to pick one loan, and attack it, paying 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.

3.  Ignoring student loans

Pretending student loans don’t exist is a huge mistake.  Ignoring student loans might temporarily receive a little stress, but while you are ignoring your loans, late fees and interest continue to pile up.

As noted earlier, for federal loans there are a number of repayment plan options.  These include repayment plans based upon your income.  No matter how low your income, ignoring the debt is never a good idea.

There are a number of 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.  The Student Loan Toolbox has a number of different resources available to help borrowers who don’t think they can keep up with payments.

4.  Spending 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 in 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 are barely able to make payments on your student loans, some private loan lenders are actually offering programs to lower your interest rate.  These programs are not required by the loan contract, but offered by lenders to help borrowers who are struggling.

On the other side of the coin, some people have a solid income and are doing fine with their student debt.  Those in stronger financial positions can refinance their debt to below 3% interest.  Over the life of the loan, this could result in a savings of tens of thousands of dollars.

5.  Getting a deferment or a forbearance

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 be 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 just makes your student loan problems grow.

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

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Money Beagle

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.


Ignoring loans, bills etc. is never a good idea. Great tips, as usual.


When you receive financial aid, you should actually review the terms and make sure it is what you expect.