Most Frequent Student Loan Mistakes

Article originally published September 28th, 2021. Updated December 6th, 2022.

While student loan debt figures have declined slowly since they hit a high in 2010 and 2011, around 70% of those graduating with a four-year college degree do so with at least some debt related to their education. As of 2022, nearly 43 million people carried federal student loan debt, with a balance of more than $37,787 on average. 

Getting a degree of any kind can be expensive, and not everyone can avoid taking out debt to do so. However, by avoiding some common mistakes, you can find the best student loans for your needs and manage them in a way that supports a better future financial outcome.

In This Piece

• Failing to Choose the Right Plan
• Borrowing More Than You Need
• Failing to Make Plans to Repay 
• Where to Find Student Loans
• Plan Ahead for Student Loan Debt

Failing to Choose the Right Plan 

It’s critical to understand how student loans work so you can make an educated decision when taking one on. The federal government offers four types of Direct Loans:

• Direct subsidized loans for undergraduate students with financial need
• Direct unsubsidized loans for post-secondary students at all levels with no requirement to meet a financial need qualification
• Direct PLUS loans for graduate and professional students or parents of undergraduates who can pass a credit check or meet other credit requirements
• Direct consolidated loans, which can be used to consolidate all qualifying federal loans into the same loan

The first step in choosing the right loan and repayment plan is doing your research and picking the loan that best meets your needs. With most student loans, you don’t start paying off the loan until you’re out of school. Then, you may be able to choose from several repayment plans:

• Standard repayment plan, which let you make a fixed payment each month
• Graduated repayment plan, which increase your payments slowly over time to allow you to increase your income as you grow your career
• Extended repayment plan, which can include fixed or graduated payments designed to pay your loan off over 25 years
• Revised Pay As You Earn Repayment plan (REPAYE), which sets payments at 10% of your discretionary income
• Pay As You Earn Repayment plan (PAYE), which sets payments at 10% of your discretionary income but doesn’t allow them to go any higher than they would under a standard repayment plan
• Income-Based Repayment plan (IBR), which sets payments at 10% or 15% of discretionary income
• Income-Contingent Repayment plan (ICR), which sets payments at 20% of your discretionary income or the amount you’d pay if you had a fixed payment for 12 years
• Income-sensitive repayment plan, which considers monthly income when setting payments but ensures loans can be paid back in 15 years

You should also consider the interest rates for loans before you agree to them, as this plays a huge role in how much you pay on the loan over time. While the U.S. Department of Education has extended COVID-19 relief of 0% interest on many student loans through December 31, 2022, normal rates for loans disbursed from July 1, 2022, through July 1, 2023, are:

• Direct Subsidized Loans and Direct Unsubsidized Loans for undergraduates: 4.99%
• Direct Unsubsidized Loans for graduate or professional students: 6.54%
• Direct PLUS Loans for parents of undergraduates or graduate or professional students: 7.54%

Borrowing More Than You Need

It’s tempting to get as much as you can from financial aid and loans. But borrowing more than you need to pay for college can leave you with big debt later that’s hard to repay.

Reduce how much you need to borrow by understanding financial aid vs. student loans. Any time you can get money to pay for education that you don’t have to pay back, that’s probably better than taking out a loan.

If you do end up with more student loan money than you need, consider paying the extra amount back right away. Cutting down on your balance can reduce how much interest you pay over time, saving you a lot of money. It can also decrease the impact of student loans on your credit—find out how bad student loans affect credit.

Failing to Make Plans to Repay 

The only time you don’t need a plan to repay your student loan is if you really don’t owe them. In that case, you should learn how to dispute student loans instead.

For loans you know you owe, create a plan of action that:

• Establishes a dedicated date and time to make your payments. Use auto-pay features or reminders on your smartphone to ensure you don’t forget.
• Creates a goal that includes a specific deadline for paying off your student loans. When possible, make extra payments to reduce interest costs and pay your loan off faster.
• Includes a regular review of your student loan account and correspondence so you’re always aware of what’s happening with your debt.

Where to Find Student Loans 

Your first step in finding student loans should be to complete the Free Application for Federal Student Aid. The FAFSA helps you know what federal financial aid and loans for which you might be eligible.

If you’re looking for private student loans, you can check with local banks, private lenders and online lenders. Or, start with our list of student loans to check out.

Plan Ahead for Student Loan Debt

Ensure you’re prepared to take on student loan debt before you sign on the dotted line. Do the research so you can choose the right loans and repayment plans. Also, have a proactive plan for paying off the debt, so it doesn’t set you up for financial stress later in life.

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