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Student Loan Help: 8 Student Loan Mistakes To Avoid

By Ben Luthi
August 27, 2018

Student loans can certainly help you pay for college. But if you’re not careful, they can also haunt you long after you graduate.

In fact, the average student loan debt for Class of 2017 graduates is $39,400, according to Student Loan Hero. That debt burden can feel crushing, even if you manage to land a great first job out of school. So, while you are figuring out how to open a bank account and be fiscally responsible while in college, it’s also critical to learn how to use student loans responsibly.

To help you out, here are 8 mistakes you can learn from.

1. Using your student loans to pay for a vacation

By the time I graduated in 2012, I had $9,133 in student loan debt. But if I had used my loan funds more wisely, I would have been in much better financial shape. That’s because I paid for not one, but two vacations using my student loans. My wife and I went on a cruise to the Bahamas in 2011 and took a trip to Disneyland the year after that.

The cost of the two trips made up roughly a third of my total student loan debt, and I paid interest on those vacations up until July 2018 when I finally paid off my loans. Not only was this a poor choice from a financial standpoint, but I also violated my loan terms. According to the Higher Education Act of 1965, federal student loans must be used for eligible education expenses, including:

  • Tuition and fees
  • Room and board
  • Textbooks and supplies
  • Transportation to and from school

Take it from me: to keep your loan balance down, stick to your loan agreement by using your student loans for eligible expenses only.

2. Taking out loans without researching other options first

Student loans are just one way to pay for college, and they can be the most expensive. As such, it’s essential that you consider student loans as a last resort.

Other ways to pay for college include:

  • Applying for scholarships: Websites like and match students with thousands of scholarship opportunities. While you likely won’t get approved for every one you apply for, you’ll increase your chances of getting cash by applying for as many as you qualify for.
  • Filling out the FAFSA: The Free Application for Federal Student Aid (FAFSA) helps the U.S. Department of Education determine if you need aid from the federal government. If you qualify, you may get access to Pell grants, which you don’t need to repay.
  • Getting a job: While you may not feel like you can fit in a job between your school work and your social life, even a part-time job can make a difference in your need for student loans. It can also help you pay for expenses that federal student loans don’t cover.

Keep in mind that you may still need student loans after considering these options, but hopefully, you will have reduced the amount you need to borrow.

3. Picking the wrong loans when taking out student loans

There are two main types of student loans: federal and private. Federal student loans are provided by the Department of Education, while private student loans are offered by private lenders.

If you’re an undergraduate student, federal student loans are almost always the better option. They don’t require a credit check, offer income-driven repayment plans and loan forgiveness programs, and typically charge lower interest rates.

Private student loans, on the other hand, require a credit check. You’ll also typically need a co-signer to improve your chances of getting the best rates lenders offer. At the same time, if you’re a graduate student or parent trying to help your child, private student loans can provide competitive terms compared with what the Department of Education offers.

So, compare federal and private loan options before you apply.

4. Not filling out the FAFSA

We’ve already discussed how filling out the FAFSA can help you potentially get a Pell grant. But another reason to fill it out is that you may qualify for subsidized federal loans.

With subsidized loans, the federal government pays the interest that accrues while you’re still in school. This means that once you graduate, your principal balance is the same as when you first got your loan. If you don’t fill out the FAFSA or don’t qualify for subsidized loans, your unsubsidized loans will accrue interest while you’re in school. That amount will then added to your principal amount when you graduate.

5. Paying for student loan help

If you have federal student loans, you may qualify for loan forgiveness or an income-driven repayment plan, which can reduce your monthly payments to 10% to 20% of your discretionary income. Also, if you have several federal loans, you can consolidate them into one loan to avoid having multiple monthly payments.

Several companies offer to help you “qualify” for these programs for a fee, but you can do the work yourself through the Department of Education – for free. So, if someone tells you they can help you get your loans forgiven or reduce your monthly payment, don’t take the bait.

6. Not refinancing your loans when you can

Once you’ve graduated, one way to pay down your student loans more quickly is by refinancing them. Refinancing is the process of replacing one or more student loans with a single loan, preferably with a lower interest rate.

The caveat is that student loan refinancing companies typically require a credit check and a decent income. This means that even if you qualify to refinance your student loans, you may not get favorable terms.

If you want to improve your chances of getting approved with a low interest rate, you can ask a co-signer with great credit and income to apply with you. But even then, there’s no guarantee. It’s up to you to research your refinancing options to find out if you can refinance your student loans at a better rate.

7. Paying your monthly bill manually

Many student loan services offer an interest rate reduction if you sign up for automatic payments. This is because borrowers with automatic payments are more likely to make their payments on time and in full every month than those who make payments manually.

Just be sure that you have enough cash in your checking account on your due date. Otherwise, you may end up getting hit with a returned payment fee from the student loan servicer or an overdraft fee from your bank.

Alternatively, you can sign up with a bank with no fees.

8. Not having a plan

The standard repayment plan for federal student loans is 10 years. But if you consolidate your loans through the federal government or get on an income-driven repayment plan, you can end up spending up to 30 years repaying your loans.

The longer it takes you to pay off your student loans, the more interest you’ll pay over time. And, the sooner you create a repayment plan, the better.

While there’s no best strategy to repaying student loans, you may want to consider a combination of refinancing to potentially lower your interest rate and adding extra payments each month to eliminate your student debt faster.

Next steps

When I first took out student loans, they seemed harmless. But over time, I learned just how financially crippling they can be. My main takeaway: as you make your way through college, be wise about how you use student loans to fund your education.

As you consider these 8 mistakes, you can find ways to use student loans more responsibly. This will help you enter the real world with less financial stress.

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