Are You Making These 6 Costly Student Loan Mistakes?

Photo (cc) by LendingMemo

New Mexico was the only U.S. state with an average student loan debt balance below $20,000 for the Class of 2013. However, it was still a whopping $18,656, according to a report by The Project on Student Debt.

That’s a tough pill to swallow.

If only there were some magic wand to make student loan debt disappear, what a joyous day that would be for many! But there’s not. So unless you’re lucky enough to qualify for a loan forgiveness program offered by your employer or the U.S. Department of Education, you’re going to have to make payments on what you borrow for school.

Here are some mistakes that could make the burden even more difficult:

1. Overextending yourself

It may be your childhood dream to attend a prestigious private school, hoping to land a six-figure job as soon as you graduate. But is it necessarily worth the much higher price than what you’d likely pay at a public university?

Gerri Detweiler at Credit.com wrote:

Researchers have found that, for the most part, students who were accepted into highly selective schools but went elsewhere to earn their degrees earned just as much on average as their Ivy League counterparts. …

And a Gallup-Purdue University poll recently found that “when it comes to being engaged at work and experiencing high well-being after graduation … the type of institution [students] attended matters less than what they experienced there.

So, it may be best to research public in-state institutions and community colleges to decrease the funding gap.

When the time comes to finalize your financial aid package, borrow only what you need. This is not a time to finance the items on your personal wish list. If you expect to earn income from a part-time job and receive scholarships and grants, don’t forget to factor them into the equation.

By the way, free money should be your first option before you even think about resorting to student loans. Along those lines, check out this video by Money Talks News’ Stacy Johnson about attending college without taking out loans.

2. Ignoring the fine print

Counting on Mom and Dad to handle your student loans? Unless they’ve committed in very clear language to assuming sole responsibility after graduation or whenever the repayment window begins, that’s a bad idea. Either way, you need to read the loan documents thoroughly to understand your financial commitment.

Plus, once you understand how much your education is going to cost, you’ll likely be inclined to take your studies more seriously.

Use a handy calculator on the Federal Student Aid website to compute how much the loans will end up costing you over time.

3. Dragging your feet

As much as you may not want to read this, delaying repayment on your student loans only makes matters worse, especially if they’re not subsidized. A better solution: Get a head start by jump-starting the repayment process while you’re in school. Even if you’re only able to afford $50 a month, any amount helps.

If you’re already in the repayment window and affordability of the payment is an issue, contact the loan servicers regarding payment plans you may qualify for.

Robert Farrington wrote on Forbes:

It’s estimated that roughly 5 million borrowers qualify for income-based repayment or pay-as-you-earn programs. However, only about 700,000 borrowers are enrolled in these programs. That gap in enrollment is costing potential borrowers a lot of money.

But carefully weigh your options before enrolling in an alternative payment plan, or choosing loan forbearance. Credit.com wrote:

Other options, like extended repayment and income-based repayment, are tempting because of their lower monthly payments. But be sure to calculate how long it’ll take to pay off your loan under these plans, and how much interest you’ll pay over time.

And be extra careful with income-based plans. Sometimes with these plans, the minimum payment doesn’t even cover all your student loan interest. In that case, your interest will be capitalized … .

For more information, check out “Finding Help With Your Student Loans.”

4. Not following up after graduation

The loan servicer does not keep tabs on your whereabouts; it’s your responsibility to keep them in the loop. So if your contact information changes after you walk across the stage, and correspondence from the loan service provider doesn’t reach you, don’t expect them to cut you any slack when the loans go into default and later appear on your credit reports.

5. Turning a blind eye to statements

Another reason to remain vigilant about your account balances and statement activity is human error. Keeping track of endless amounts of paper is annoying, to say the least, but it beats making payments that aren’t allocated to the proper account or overlooking overstated account balances. Both are the result of human or system error, which likely can be corrected with a little time and effort.

If you’re having a tough time keeping track of all your loans, student loan consolidation is an option worth considering.

6. Using student loan debt relief programs

Thinking of signing up for debt relief services to get through the rough patch? You may definitely want to reconsider. As we noted a few months back, there’s no need to fork over your hard-earned cash for these services. Reasoning? As we wrote, “The industry is riddled with fraudsters who employ shrewd tactics and charge exorbitant fees to access government programs you can participate in free of charge.”

Bottom line: Borrowing irresponsibly and bailing out when it’s time to take care of business won’t do you any good. So, pick up the phone and call the lender so you can sort things out and get back on track with your student loan payments.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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