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Guide for Student Loan Mistakes to Avoid

Many students depend on student loans to finance their college education, yet only a small number truly understand how these loans work. This lack of awareness is concerning, especially because most borrowers take on tens of thousands of dollars in student debt. Even small mistakes in the borrowing or repayment process can lead to long-term financial consequences.

In many cases, students accumulate high balances due to factors such as deferment, forbearance, and income-driven repayment plans. When used without a clear strategy, these options can cause interest to grow significantly, resulting in borrowers owing far more than their original loan amount.

Understanding the most common student loan borrowing and repayment mistakes is essential. With the right knowledge, students can avoid overwhelming debt, make informed financial decisions, and pay off their loans more efficiently.

Student Loan Mistakes to Avoid

Many common student loan mistakes stem from not fully understanding the type of loan being taken, how interest accumulates, effective repayment strategies, and the serious consequences of default. Being aware of these issues can help borrowers make smarter decisions, manage their debt responsibly, and avoid unnecessary financial stress.

Mistake 1: Waiting Until the Last Minute to Apply for Financial Aid

The Free Application for Federal Student Aid (FAFSA) is the primary form required to access most types of financial assistance, including federal grants, federal student loans, state grants, and many school-based scholarships and aid programs.

FAFSA becomes available every year on October 1, and it must be completed by June 30 for the upcoming academic year. Students must submit a new FAFSA each year they plan to attend college.

Many institutions also require additional documents, such as the CSS Profile, which provides a more detailed look at a family’s financial situation. Because requirements vary by school, it’s important to check with the financial aid office and keep track of all deadlines.

State and institutional aid is limited and typically awarded on a first-come, first-served basis. Applying early increases your chances of receiving grants and scholarships before funds run out.

Although federal loan funds rarely run out, missing the FAFSA deadline may force you to rely on private student loans, which generally come with higher interest rates and fewer repayment protections.

Submitting your applications as early as possible helps you secure the maximum amount of grant and scholarship aid—ultimately reducing the amount you need to borrow in student loans.

Mistake 2: Borrowing More Than You Actually Need

While students can technically borrow enough to cover the full cost of attendance at almost any institution, it’s important to consider whether taking on that level of debt is financially wise. Excessive student loan borrowing can lead to long-term financial strain, limited career flexibility, and difficulty managing monthly payments after graduation.

One common reason borrowers become overwhelmed is relying heavily on loans without fully exploring alternative funding options. Before turning to student loans, it’s essential to pursue all available sources of financial assistance, such as grants, scholarships, and work-study programs. Using scholarship databases and national search platforms can significantly reduce the amount you need to borrow.

It’s also risky to depend on programs like Public Service Loan Forgiveness (PSLF) as your primary repayment strategy. Although forgiveness programs can be helpful, eligibility rules are strict, processing is complex, and approval rates have historically been low. Borrowers should treat these programs as potential benefits—not guarantees.

Choosing a more affordable college can also prevent excessive debt. Public institutions often offer strong academic value at a much lower cost than private or out-of-state schools. Unless your career path requires networking within a specific industry or attending a certain institution, the most cost-effective option is generally the better financial decision.

Conducting a realistic cost-benefit analysis is crucial as well. Some degrees offer limited earning potential, making it harder to manage large loan balances. Research salary data on platforms like PayScale or Glassdoor to estimate your expected income in your chosen field. A widely recommended guideline is to avoid borrowing more than your projected first-year salary. This helps ensure that your student loans remain manageable and can typically be paid off within 10 years.

Being intentional about how much you borrow can significantly reduce financial stress later and improve your long-term financial stability.

Mistake 3: Not Understanding How Loan Forgiveness Works

Loan forgiveness programs—especially Public Service Loan Forgiveness (PSLF)—can help eligible borrowers eliminate remaining student loan debt, but the rules are specific and often misunderstood. Historically, PSLF had an extremely low approval rate, largely due to administrative errors and borrowers being placed on repayment plans that did not qualify. Although major improvements were made in 2021 through Temporary Expanded Public Service Loan Forgiveness, borrowers must still ensure they follow all current requirements.

Because loan forgiveness takes years to achieve, misunderstanding the rules can result in making nonqualifying payments and losing valuable progress. To avoid setbacks, borrowers need to be fully aware of how PSLF works and what steps are necessary to maintain eligibility.

To qualify for PSLF, borrowers must meet the following requirements:

Have Federal Direct Loans
Only Direct Loans are eligible for Public Service Loan Forgiveness. Private loans and certain federal loans—such as Perkins Loans—do not qualify. Borrowers with non-Direct federal loans can consolidate them into a Direct Consolidation Loan if they want to pursue PSLF.
Work Full-Time for a Qualifying Employer
Eligible employment includes full-time work with federal, state, local, or tribal governments, as well as 501(c)(3) nonprofit organizations. Service through AmeriCorps, Peace Corps, and the U.S. military also qualifies. Employment with labor unions or partisan political organizations is not eligible.
Enroll in an Income-Driven Repayment (IDR) Plan
Only payments made under an income-driven repayment plan count toward PSLF. Even if your IDR payment is calculated as $0 due to low income, those months still count as qualifying payments.
Make 120 Qualifying Payments
Borrowers must make 120 payments that meet PSLF requirements. These payments do not have to be consecutive, but they must be made under a qualifying repayment plan while working full-time for a qualifying employer.
Submit Employment Certification Regularly
Although not mandatory, submitting a PSLF Employment Certification Form every year—and whenever your employment changes—helps confirm that your payments are qualifying. Regular certification prevents unexpected issues after years of repayment and ensures your progress is being tracked accurately.

Understanding these rules from the beginning is essential for successfully achieving loan forgiveness and avoiding costly mistakes that can delay or disqualify your application.

Mistake 4: Taking Out the Wrong Type of Loan

Many borrowers are unaware that multiple types of student loans exist, and choosing the wrong one can lead to unnecessary interest costs or reduced repayment flexibility. As a general rule, federal student aid should always be used before turning to alternative loan options, since federal loans typically offer better protections and repayment benefits.

In some cases, federal borrowing limits may not fully cover the cost of attendance. Graduate students and parents of undergraduate students can use PLUS loans to bridge this gap, as these loans allow borrowing up to the full cost of attending a school. Many students also have access to state-based loans or school-issued loans, depending on the institution.

When federal loans are not sufficient, the next option is usually private student loans offered by banks, online lenders, or credit unions. However, federal loans are almost always the better choice due to their fixed interest rates, income-driven repayment plans, deferment and forbearance options, and the possibility of qualifying for forgiveness programs.

That said, there are rare situations where comparing private loans may make sense—particularly if you are considering PLUS loans and have strong credit. In some cases, a private lender may offer a lower interest rate than a PLUS loan, but this should only be considered if you are certain you will not pursue Public Service Loan Forgiveness or other federal benefits.

Choosing the right type of loan from the start can significantly reduce long-term borrowing costs and provide greater financial flexibility throughout repayment.

Mistake 5: Not Comparing Interest Rates and Loan Terms

If you decide to take out private student loans, comparing lenders is essential. Private lenders vary widely in their interest rates, repayment terms, and borrower perks, so choosing the first option you come across could result in paying much more over time.

Using loan comparison platforms—such as Credible—can simplify this process. These tools allow you to view prequalified offers from multiple lenders with just a soft credit check, helping you evaluate interest rates and terms side by side without affecting your credit score.

However, interest rates aren’t the only factor that matters. Many private lenders provide additional benefits that can reduce your overall borrowing costs or make repayment more manageable. Common perks include rate reductions for enrolling in automatic payments, loyalty discounts for existing banking customers, and specialized repayment plans for certain borrowers, such as medical or dental residents.

Some lenders also offer unique benefits like free financial coaching, internship support, or career guidance, which can add value beyond the loan itself. Still, it’s important to read all loan terms carefully before signing. A low interest rate can be undermined by limited deferment options, the absence of a co-signer release, or restrictive repayment conditions.

Taking the time to compare rates, benefits, and borrower protections ensures you choose the most cost-effective and flexible private loan for your situation.

Mistake 6: Not Understanding How Variable and Fixed Interest Rates Work

Interest rates play a major role in the total cost of your student loans, but it’s just as important to understand how those rates function over time. The structure of your interest rate—fixed or variable—can significantly impact how much you ultimately pay.

Federal student loans always come with fixed interest rates set annually by law. Once you borrow, your rate remains the same for the entire life of the loan. A fixed rate provides predictability, which can be beneficial if rates are rising, but it also means you keep the same rate even if market rates fall.

Private student loans can come with either fixed or variable rates. Variable interest rates tend to start lower than fixed rates because they are tied to market conditions. However, they can increase over time—sometimes significantly—especially if your repayment period extends over a decade or more. Borrowers choosing variable rates are essentially taking on the risk of future rate fluctuations.

If you currently have a private loan with a variable rate, refinancing to a fixed-rate loan may be worth considering, particularly during periods of low interest rates. Refinancing can help stabilize your monthly payments and protect you from future rate increases.

Once you begin repayment, it is also helpful to ask your lender about available discounts. Many lenders offer reduced rates for enrolling in autopay or meeting certain customer criteria, which can help lower your overall interest costs.

Understanding how your interest rate works ensures you choose a loan structure that aligns with your long-term financial goals.

Mistake 7: Not Understanding Interest Accrual and Capitalization

It’s important to know when interest starts accruing on your student loans and how it affects the total amount you owe. For subsidized federal loans, interest does not accumulate while you are enrolled at least half-time. This means the amount you borrow remains the same until you graduate, leave school, or drop below half-time enrollment.

In contrast, unsubsidized federal loans and private loans begin accruing interest immediately after disbursement. By the time you graduate, your balance may already be higher than the original amount borrowed.

Interest on these loans is often capitalized—added to your principal—once you leave school or drop below half-time enrollment. This means future interest accrues on a larger balance, effectively making you pay interest on interest.

To minimize the impact of capitalization, consider making small monthly interest payments while still in school. Even partial payments can prevent interest from compounding, reducing the overall cost of your loans.

If possible, a part-time job can help cover these payments. Not only does it provide funds to manage interest, but it also teaches money management skills that can make repayment easier after graduation.

Understanding how interest accrues and capitalizes can save borrowers significant money and help maintain a manageable repayment plan.

Mistake 8: Co-Signing a Loan Without Understanding the Consequences

Co-signing a student loan can help a borrower qualify or secure a lower interest rate, but it comes with significant risks. As a co-signer, you are legally responsible for the loan. If the borrower misses a payment or defaults, the lender can pursue you for repayment, and any late or missed payments can negatively affect your credit score.

Even the most responsible borrower can encounter unforeseen financial difficulties. Federal loans offer repayment programs for borrowers in hardship, but private loans are often less flexible, making co-signing especially risky.

If co-signing is necessary, look for lenders that offer a co-signer release option, which removes your responsibility after the borrower makes a specified number of on-time payments.

Alternatively, a Parent PLUS loan may be a safer option. The loan is in the parent’s name, allowing access to federal protections and repayment plans. While parents can ask the student to repay them, this agreement is generally not legally enforceable.

It’s important not to compromise your own financial security, such as retirement savings or personal debt capacity, to fund a child’s education. Co-signing should be approached cautiously, with a clear understanding of the risks and responsibilities involved.

Mistake 9: Delaying the Creation of Repayment Plan

Many students assume they can wait until after graduation—and the end of the six-month grace period—to start thinking about student loan repayment. However, planning ahead is essential to avoid financial strain.

Monthly loan payments can easily reach several hundred dollars, which may take up a significant portion of a recent graduate’s income. Without an early plan, it’s easy to commit to post-college expenses—like upgraded housing or a new car—that leave little room for loan payments.

Before graduation, borrowers should determine their expected monthly payment. This information is accessible by creating a student account at StudentAid.gov. Once you know your payment, structure the rest of your budget around it to ensure you don’t overextend financially.

Early planning may require maintaining a frugal lifestyle for the first few years after graduation, but it helps prevent missed payments, excessive interest accrual, and long-term debt problems.

Mistake 10: Choosing the Wrong Repayment Plan

The standard student loan repayment schedule is a 10-year plan with fixed monthly payments. While straightforward, it may not be the best fit for every borrower. Selecting the wrong repayment plan can lead to unnecessary financial stress or missed opportunities for forgiveness.

Borrowers with high debt relative to income may benefit from income-driven repayment (IDR) plans, which adjust monthly payments based on income and family size. Any remaining balance is forgiven after 20 to 25 years of qualifying payments. For those in public service jobs, IDR plans are also essential for qualifying for the Public Service Loan Forgiveness (PSLF) Program, which forgives remaining balances after just 120 qualifying payments.

Other repayment options include graduated repayment plans, which start with lower payments that gradually increase every two years. This approach is ideal for borrowers entering lower-paying jobs who expect their income to grow over time.

Borrowers can use the StudentAid.gov loan simulator to compare repayment plans. The simulator provides estimated monthly payments, total interest costs, potential forgiveness balances under income-driven plans, and the projected payoff date.

When choosing a plan, consider questions such as:

Is it realistic to pay off the loan within 10 years on the standard plan given your current income?
If choosing graduated repayment, will future income growth cover the increasing payments?
Would an income-driven or extended repayment plan make your current financial situation more manageable, even if it increases total interest paid?

Using these tools and carefully evaluating your options helps ensure your repayment plan aligns with both your income and long-term financial goals.

Mistake 11: Only Making the Minimum Payment

Paying only the minimum on student loans can significantly increase the total cost of your debt due to accumulating interest. Whenever possible, contributing extra toward your loans can help reduce both the repayment period and the overall interest paid.

Even modest additional payments can make a meaningful difference. For instance, on a $40,000 loan at 6% interest, the standard monthly payment would be $444. Increasing that payment to $500—just $56 more per month—could save nearly $2,000 in interest and shorten repayment by approximately one year.

To make extra payments, consider side income opportunities, trimming discretionary spending, or applying unexpected funds such as tax refunds, bonuses, or gifts directly toward your loans.

Important: Always instruct your loan servicer to apply additional payments to the principal balance, not future interest. Paying down the principal reduces interest accrual and accelerates your path to becoming debt-free.

Mistake 12: Refinancing Without Considering the Pros and Cons

Refinancing can be an effective strategy for reducing student loan costs, especially if you can secure a lower interest rate. However, it’s important to understand that interest rates are only one factor when deciding whether to refinance.

Federal student loans can only be refinanced through private lenders. Doing so replaces your federal loans with a private loan, which eliminates access to federal benefits such as income-driven repayment plans, deferment and forbearance options, borrower protections, and federal loan forgiveness programs. Losing these protections can create risk if financial circumstances change in the future.

Refinancing may still make sense if the private interest rate is significantly lower than your current federal rate, but it’s crucial to carefully weigh the trade-offs before proceeding. Keep in mind that federal loan forgiveness programs are no longer available once a loan is refinanced.

For private student loans, however, refinancing is generally less risky and can help reduce interest costs and improve repayment flexibility, making it a viable option.

Mistake 13: Postponing Payments Unnecessarily

Both federal and private student loans offer deferment and forbearance options, allowing borrowers to temporarily pause payments for reasons like full-time enrollment, economic hardship, military service, or participation in programs such as AmeriCorps.

While these options can be helpful in the short term, excessive or prolonged use can increase your overall loan balance. Interest continues to accrue on all loans during forbearance and on unsubsidized federal and private loans during deferment. This accrued interest is often capitalized at the end of the deferment or forbearance, meaning it is added to your principal and generates additional interest over time.

To minimize costs, use deferment or forbearance only when necessary, and consider making interest payments during these periods to prevent capitalization.

For economic hardship situations that may extend beyond a few months, enrolling in an income-driven repayment plan can be a better alternative. Some plans allow payments as low as $0, prevent capitalization of interest for a period, and even provide government interest subsidies. Additionally, these $0 payments may count toward student loan forgiveness, although only certain hardship deferments contribute to forgiveness eligibility, and there are limits on the length of deferment.

Income-driven plans also allow borrowers to adjust payments if financial circumstances change, offering more flexibility than deferment or forbearance alone. Carefully evaluating these options ensures you manage your loans efficiently without unnecessarily increasing your debt.

Mistake 14: Missing Payments

Missing student loan payments can quickly compound financial problems. Late fees are typically added to your next month’s minimum payment, which can make repayment even more challenging.

Additionally, when you make your next payment, funds are applied to fees and interest before reducing the principal balance. This slows progress in paying down the loan and increases the total interest paid over time, since interest accrues on the remaining principal.

Repeated missed payments can eventually lead to loan default, which carries severe consequences, including damaged credit, wage garnishment, and even seizure of tax refunds, Social Security benefits, or property.

For federal student loans, there is virtually no reason to miss a payment due to financial hardship. Borrowers can contact their loan servicer to explore options such as deferment, forbearance, or income-driven repayment plans, all of which provide protections and prevent default.

Private loans typically offer fewer repayment options, but many lenders will work with borrowers who communicate their financial difficulties. Some top private lenders provide limited deferment or forbearance programs to help manage hardship.

Staying proactive and communicating with your loan servicer ensures you avoid unnecessary fees and protect your financial future.

Mistake 15: Not Adjusting Your Payment Due Date

Many borrowers stick with their original student loan payment due date, even when it doesn’t align well with their income schedule. Most lenders allow you to change your monthly due date, which can help make budgeting easier and reduce the risk of missed or late payments.

For example, if your paycheck arrives biweekly or your other bills are clustered at the same time of the month, shifting your student loan due date can prevent overlapping expenses and help you manage cash flow more effectively.

To adjust your due date, contact your loan servicer or check your online account for options. Always request written confirmation of the new due date to avoid errors or unexpected late fees. Keep in mind that changes may take a billing cycle or two to take effect, depending on your lender.

By aligning your payment schedule with your income and expenses, you can reduce financial stress and stay on track with your loan repayment.

Mistake 16: Falling for Student Loan Scams

Student loan borrowers are frequent targets of scams via phone calls, emails, texts, and letters claiming to offer loan relief or urgent federal forgiveness opportunities. Unfortunately, these schemes often steal money or personal information rather than provide legitimate assistance.

Common scams include charging fees to help students apply for income-driven repayment plans or loan consolidation. In reality, federal repayment programs are free—you only need to contact your loan servicer directly.

To protect yourself:

Never provide personal information to unsolicited contacts. Ask them to send their request in writing or tell them you’ll call back.
Verify independently by contacting your loan servicer through official contact information on their website.
Avoid upfront fees for student loan services. Government programs do not charge application fees and do not impose artificially short deadlines.

For more guidance, the U.S. Department of Education provides detailed tips for spotting and avoiding student loan scams. Staying vigilant ensures your personal information and finances remain secure.

Mistake 17: Forgetting to Update Your Contact Information

As a borrower, you are responsible for making all loan payments, even if you don’t receive a bill. Loan servicers can change over time, so it’s essential to ensure you can always be reached and know who to contact regarding your student loans.

Keep your mailing address, email, and phone number up to date with your loan servicer. This is especially important if you moved after graduation or initially used a parent’s address on your application forms.

To stay current:

Log into your student loan account to verify and update your contact information.
If you’re unsure who your loan servicer is, contact your school’s financial aid office. For federal loans, you can also check your account on StudentAid.gov.
Update your information whenever you move, change your phone number, or get a new email address.

Maintaining accurate contact information ensures you receive important notifications, avoid missed payments, and can effectively manage your loans without unnecessary complications.

Mistake 18: Not Asking for Help

Managing student loans can feel overwhelming, especially for borrowers with low income or large amounts of debt. Falling behind or paying late can damage your credit, affect your ability to rent, buy a car, or even get a job, and in extreme cases, lead to wage garnishment, penalties, or lawsuits.

However, there are resources available to help you navigate repayment challenges.

Contact your loan servicer: Explain your financial situation and ask if there is a repayment plan that fits your budget. Even if no standard plan works, discussing what you can afford can open alternative options.
Federal student loans: If your servicer is unhelpful, reach out to the federal student loan ombudsman for guidance.
Nonprofit counselors: Organizations like the National Foundation for Credit Counseling or the Institute of Student Loan Advisors provide guidance on repayment strategies and overall financial health.
Legal assistance: If you need to settle loans or explore bankruptcy options, consult attorneys specializing in student loans. For private loan assistance, check the National Association of Consumer Advocates; for federal loans, search the American Bar Association directory.

Asking for help early can prevent serious financial consequences and give you a structured path to manage your loans effectively. No borrower should face student loan challenges alone.

Conclusion

Student loans can be a powerful tool for achieving your educational goals, but they also come with significant responsibilities. Avoiding common mistakes—from borrowing too much or missing payments to falling for scams or neglecting to ask for help—can save you time, money, and stress.

By understanding how interest accrues, exploring repayment options, staying in communication with your loan servicer, and taking advantage of available resources, you can manage your debt responsibly and work toward financial freedom.

Remember, knowledge and proactive planning are your best defenses against overwhelming student loan debt. Start early, stay informed, and take control of your repayment strategy—so your loans support your future rather than hold you back.