5 Common Student Loan Mistakes to Avoid This School Year
It’s that time of year again: back to school time. And while students are anxious to walk through their school halls, check off their back to school lists, and make sure they have plenty of friends in every class, graduates may be struggling to pay off their debt.
Unfortunately, student loan debt is at an all-time high and continues to rise. The average
In the summer of 2016, we surveyed around 1,000 young professionals for The Impact of Student Loan Benefits, a white paper outlining the effect of student loan debt on employee recruitment. We found over 60% of respondents reported that student loan debt is one of the top two financial concerns in their lives. While student loans are clearly a stressor for millennials, there’s a way to prevent them from causing students so much anxiety.
Understanding the costliest student loan mistakes and how to avoid them before you head back to school this fall can help you keep a cool head about student loans. It may be one of the best back to school tips you’ll get this year. That being said, here are the biggest student loan mistakes you can make:
5 Student Loan Mistakes to Avoid
Not Researching All Your Student Loan Financing Options
In the changing economic climate, student loans and back to school now go together like peanut butter and jelly. Sadly, the excitement of heading back to school often overshadows the need to research student loan options.
Education is key to not making costly student loan mistakes. The more you understand what financial aid options are available to you, the easier it will be to make the best financial decision. Too frequently students take more loans out than they need because they are simply unaware of the financial consequences. Here are some funding options available to you:
Federal Loans
In order to receive federal aid, you must apply through the Federal Student Aid website. The amount of aid you will receive is based on each student’s financial need and the amount of aid available at your college of choice. Federal loans offer flexible repayment options as well as loan forgiveness plans after 10 to 25 years of repayment. Types of federal student aid include:
• Direct Subsidized Loans: Financial assistance for eligible undergraduates who demonstrate need.
• Direct Unsubsidized Loans: Financial assistance for eligible undergraduates, graduates, or professional students who do not demonstrate a need for financial aid.
• Direct PLUS Loans: Financial assistance for graduates, professional students, or parents of dependent undergraduate students to help pay for any education expense.
Private Loans
Private student loans often come into play when students don’t have enough funds to support their education expenses. These loans may not offer flexible repayment plans or loan forgiveness in the way federal loans do. You must apply for a private loan through a financial institution as opposed to through the government.
Many students assume that federal loans always offer lower interest rates. Depending on your loan type and disbursement date, your federal loan interest rate could be anywhere from 3% to 8%.
Grants and Scholarships
Essentially, grants and scholarships are free money awarded based on financial need, academic merit, and more. When you submit your application for federal student aid, you will also apply for federal grants. You will be awarded grants based on your financial need. Scholarships can be offered by your college, various organizations, businesses, or by a specific individual. Visit your college’s website or financial aid office to see what is offered.
Funding Your Back to School List with Your Student Loan Refund
Every school offers a different student loan package and scholarship options. Sometimes students find themselves in a situation where they receive more loans than they need. When your student loan check hits your bank account, it’s easy to be swayed into using your additional cash for your back to school list or the new computer you don’t really need. The problem is this will cost you additional interest. If you use the extra cash to decorate your dorm and buy that computer, you end up paying interest on that money. Even a thousand dollars here and there can increase your financial burden.
Going Back to School without Making a Plan for Repayment
If you are applying for student loans and going back to school this fall, you should make sure you have a debt repayment plan in place. You don’t want to graduate to find that your first $500 student loan payment is due by the end of the month. Staying proactive is key to not letting student loan stress drain your energy and potentially your bank account.
Before heading back to school, estimate your total costs for the year. College
and interest rates go up—make sure you’re keeping tabs on these things. Every year, you need to re-evaluate your budget and review your tuition cost and school fees. If your tuition went up, that’s something you need to be aware of. If your living situation changed, factor that into how much you need in loans this year. Estimate the amount you’ll need for books, other school fees, and living expenses. And don’t get too comfortable with your loan choice; You should review your student aid options every year to determine whether your funding needs have changed.
Choosing to Forgo Refinancing or Consolidation Options
Keep in mind that once you graduate, you are not necessarily stuck with your interest rate or loan terms. There are plenty of options you can entertain for student loan repayment. By refinancing your student loans, you are essentially taking out another loan to pay off your current student loan debt. This new loan could potentially have a lower interest rate or a lower monthly payment. (Be aware: Lowering your payment by extending your loan term may mean you pay more interest over the life of the loan.) Refinancing is ideal for graduates who have a good credit score and aren’t using federal loan protections like the Public Service Loan Forgiveness program or income-driven repayment plans.
Federal loan consolidation combines all of your student loans and generates a new rate based on a weighted average of your older rates. This doesn’t necessarily lower your interest rate, but it makes things more straightforward, and you’re still eligible for federal loan protections with a
Dragging out Student Loan Repayment
Finding a job after graduation may not happen right away. Different degrees yield different employment results, and job markets are rarely guaranteed. If you have federal loans, you’ll typically be offered a six-month grace period after you graduate. However, interest still accrues during this
This fall, don’t stress about student loans and going back to school. This back to school season, use these student loan tips to avoid costly student loan mistakes.
Have you fallen victim to any of these student loan mistakes? Consider refinancing with SoFi for a new interest rate and loan terms.
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