5 Common Student Loan Mistakes to Avoid

Written By LaTisha  |  Budgeting & Saving  |  0 Comments

Don’t fall into these traps with your student loans:

  1. Lying on applications: It’s illegal and can lead to fines, jail time, and deportation.
  2. Wasting loan money: Only use it for school-related expenses.
  3. Choosing the wrong repayment plan: You could end up paying thousands more in interest.
  4. Ignoring refinancing: You might miss out on lower interest rates.
  5. Skipping payments: Your credit score takes a hit and your debt grows.

Quick comparison of federal vs. private student loans:

Aspect Federal Loans Private Loans
Interest Rate Fixed Can be variable
Repayment Options More flexible Less flexible
Forgiveness Programs Available Rarely available
Credit Check Not required for most Required

Want to pay off $30,000 in student loans fast? Here’s how:

  • Make extra payments
  • Refinance if you have good credit
  • Enroll in autopay for a rate discount
  • Make biweekly payments
  • Use windfalls like tax refunds
  • Stick to the standard 10-year plan
  • Pay off capitalized interest ASAP

Remember: Borrow only what you need, and know your repayment options. Your future self will thank you.

Lying on Loan Applications

Lying on student loan applications is a federal crime with severe consequences. Here’s what you need to know:

If you’re caught lying on your FAFSA, you could face:

  • Up to 5 years in prison
  • Fines up to $20,000
  • Repayment of all aid received
  • A permanent criminal record

The Department of Education verifies about one-third of all FAFSA applications each year. They’re not messing around.

Common lies and their consequences:

Lie Consequence
False income Loss of aid, legal charges
Using another’s identity Identity theft charges
Fake citizenship Deportation for non-citizens
Enrolling without intent Fraud charges

Real-life examples:

  • In 2014, a mother-daughter duo pleaded guilty to fraud. The mom claimed zero income while earning over $521,000.
  • A college professor faced fraud charges for allegedly helping students lie on applications.

"College financial aid administrators are more skilled and experienced at detecting lies than families are at perpetrating them." – Mark Kantrowitz, Senior Vice President and Publisher of Edvisors.com

The bottom line? Don’t lie. The risks aren’t worth it. Be honest, even if it means less aid. It’s better than ending up in legal trouble.

2. Spending Loan Money on Non-Essentials

Students often make a big mistake: using loan money for stuff they don’t need. It’s tempting, but it can mess up your finances for years.

Here’s what you should (and shouldn’t) buy with student loans:

Good Uses Bad Uses
Tuition Vacations
Books New clothes
Housing Fun stuff
Basic living costs Eating out
School transport Crypto

Why is this a problem? Three reasons:

  1. More debt (plus interest)
  2. Possible legal trouble (for federal loans)
  3. Running out of money for actual school needs

So, what can you do?

  1. Make a budget
  2. Give back extra money
  3. Get a part-time job for fun stuff

"Borrow as little as you need to live your life the way you need to be successful in your academic pursuits." – Ken Ruggiero, Ascent Funding CEO

Think twice before buying that daily latte. $4 a day is $120 a month – that’s real money you could use for school.

3. Choosing the Wrong Repayment Plan

Picking a student loan repayment plan is like choosing shoes. The wrong fit? Pain with every step.

Here’s the scoop:

After school, you’re auto-enrolled in the standard 10-year plan. But it’s not for everyone.

Your options:

  • Standard plan: Fixed payments, 10 years. Pay less interest if you can swing it.
  • Income-Driven Repayment (IDR): Payments based on income. Can be $0 if you’re broke.
  • Graduated plan: Starts low, increases every two years. Good if you expect a pay bump.
  • Extended plan: 25 years of payments. Lower monthly, but more overall.

Sounds easy? Not quite.

The wrong choice can cost you. Check this out:

"A FitBUX member’s loan servicer said $1,100 per month when it should’ve been $400. That’s $8,400 extra in one year!"

Ouch. Always double-check your numbers.

Here’s a quick comparison:

Plan Pros Cons
Standard Less interest Higher monthly
IDR Lower payments, possible forgiveness More interest long-term
Graduated Low initial payments Might struggle later
Extended Lowest monthly Way more interest

What to do:

  1. Use the Federal Student Aid‘s Loan Simulator. It’s free.
  2. Think long-term. Lower now might mean more later.
  3. Check the math. Even servicers make mistakes.
  4. Reassess yearly. Your needs change.

You can switch plans anytime. Just call your servicer.

Bottom line: Don’t "set and forget." Your repayment plan matters. Choose smart, check often, adjust as needed.

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4. Ignoring Refinancing Options

Think refinancing is just for mortgages? Nope. Many borrowers miss out on big savings by not refinancing their student loans.

Refinancing can cut your interest rates and simplify your payments. But a lot of people don’t even think about it.

Here’s what refinancing can do:

  • Cut your interest rates (some lenders offer fixed rates as low as 3.99% APR)
  • Combine multiple loans into one payment
  • Let you choose a repayment plan that fits your budget

But watch out: refinancing federal loans means losing government benefits. So be careful.

Check out these options:

Lender Fixed APR Range Unique Feature
SoFi 3.99% – 9.99% Extra discount for autopay
Earnest 4.24% – 9.99% Customizable payments
Citizens Bank 3.48% – 10.78% Multi-year approval

"We’ve seen members save thousands by refinancing. One borrower cut their rate from 6.8% to 3.5%, saving over $300 per month", says a SoFi representative.

Want to refinance? Here’s what to do:

  1. Check your credit score
  2. Compare offers from multiple lenders
  3. Use a refinance calculator to estimate savings
  4. Read the fine print (especially for federal loans)

But hold on: refinancing isn’t for everyone. If you’re on an income-driven plan or aiming for loan forgiveness, keep your federal loans.

The bottom line? Don’t ignore refinancing. It could save you serious cash.

5. Skipping Loan Payments

Skipping student loan payments? Bad idea. Here’s why:

  • Your credit score takes a hit
  • Your debt grows
  • You risk defaulting

The fallout is rough:

What Happens Federal Loans Private Loans
Late fees 6% of late payment Varies
Credit report ding After 90 days Can be instant
Default 270 days 90 days
Wage garnishment Possible Possible with court order

"Skipping is never a good idea", says Stacey MacPhetres, a college finance expert.

If you’re in a tight spot:

  1. Talk to your lender
  2. Look into income-driven repayment for federal loans
  3. Consider refinancing (but watch out for losing federal benefits)

One missed payment can snowball. Nicole Stovall from Affinity Federal Credit Union warns, "Your lender is going to report you to the credit bureaus."

Don’t let a short-term cash crunch become a long-term mess. Get help before you skip payments.

Conclusion

Student loans can be tricky. Here are 5 big mistakes to avoid:

  1. Lying on applications: It’s illegal and not worth it.
  2. Wasting loan money: Use it for school stuff only.
  3. Picking the wrong repayment plan: You could pay way more interest.
  4. Ignoring refinancing: You might miss better deals.
  5. Skipping payments: Your credit takes a hit, and your debt grows.

Student loans are a big deal. Here’s how federal and private loans stack up:

Aspect Federal Loans Private Loans
Interest Rate Fixed Can be variable
Repayment Options More flexible Less flexible
Forgiveness Programs Available Rarely available
Credit Check Not required for most Required

Daren Blonski from Sonoma Wealth Advisors says: "The biggest mistake consumers make on taking federal student loan debt is taking too much."

To stay on track:

  • Borrow only what you need
  • Pay interest during school if you can
  • Keep your loan servicer in the loop
  • Know your repayment options

Joe DePaulo from College Ave Student Loans adds: "Knowing how much you’ll need to pay each month on your student loans is a fundamental first step for smart financial planning, and the sooner you know it, the better."

FAQs

How to pay off $30,000 in student loans fast?

Want to crush that $30,000 student loan debt? Here’s how:

1. Make extra payments

Throw any extra cash at your loan principal. Even small amounts add up over time.

2. Refinance your loans

Got good credit and a steady job? Refinancing could slash your interest rate. Example: Dropping from 6.8% to 4.5% on a $30,000 loan could save you $3,500 in interest over 10 years.

3. Enroll in autopay

Many federal loan servicers offer a 0.25% interest rate discount for automatic payments. It’s small, but it counts.

4. Make biweekly payments

Pay half your monthly amount every two weeks. You’ll sneak in an extra payment each year.

5. Use ‘found’ money

Got a tax refund or bonus? Throw it at your loan balance.

6. Stick to the standard repayment plan

Income-driven plans might lower your monthly payments, but they drag out your loan. The 10-year standard plan usually gets you debt-free faster.

7. Pay off capitalized interest

Got unpaid interest added to your principal? Pay it off to stop your loan balance from ballooning.

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