The Most Common Mistakes When Repaying Student Loans

Facebook icon Twitter icon Print icon Email icon
Bethany McCamish

By Bethany McCamish

January 8, 2019

Making a mistake in repaying your student loans will cause you stress and cost you money. Ten tips will help you avoid student loan planning and payment mistakes.

Being Disorganized with your Loans. Not knowing where your student loans are can lead to late payments or loan default. Make sure you have looked at your financial records from college and not missed any loans. Did you take out a private student loan and a federal student loan? If so, you will have multiple lenders. Create a spreadsheet and stay organized with your student loans and how to pay them off. Visit and if you’ve lost track of one or more of your loans.

Forgetting to Update your Contact Information. Our lives are in constant flux, but keeping your contact information current with your lender is crucial to keep up with payments. If you are still in school, make sure the college has your current contact information as well since they will be in contact with the lender when required.

Not Signing Up for Auto Debit. Connecting your checking account to your loan account may sound invasive, but making the monthly loan payments automatically ensures that you do not miss a payment. As an added bonus, many lenders provide a discount for auto-debit as an incentive, saving you money. Set it so you do not forget it.

Use our Student Loan Calculator to determine the monthly loan payment and total payments on your student loans.

Choosing Too Long of a Payment Term. Longer payment terms can cost you more in the long run since you will be paying interest during the entire loan period. A longer repayment term sustains a higher loan balance longer, increasing the total interest charges. While a lower monthly payment may sound appealing, avoid this if you can afford to pay on a shorter term loan. Choose the repayment plan with the highest monthly payment you can afford.

Refusing to Ask for Help when Needed. If you are struggling to make the student loan payments due to family of financial circumstances, ask for an alternative repayment plan from your lender. You do not want to default on the loan and you cannot discharge loans via bankruptcy. A short-term deferment or forbearance might help for a short-term financial difficulty. For longer-term financial difficulty, consider an income-driven or extended repayment option.

Staying on an Income-Driven Repayment Plan Too Long. Income-driven repayment plans are offered for federal student loans and can be helpful for times of need. However, staying on a plan like this when you could be making the full payments can result in capitalized interest (if interest is left unpaid) and a much longer repayment term, and therefore more money from your pocket. The same can be said for entering into deferment or forbearance when it is not needed. If you can make the student loan payments, do so.

Allowing Interest to be Capitalized.  Unpaid interest on student loans will be capitalized at various stages in loan repayment, based on the type of loan. Interest capitalization means unpaid interest will be added to your principal balance. You will then be paying interest on interest, compounding the problem. This should be avoided by paying the interest as it accrues, even while in school.

Assuming Loan Forgiveness. Loan forgiveness is an alluring idea, but you must meet very specific requirements in order to qualify. One of those requirements is a working for the government or a non-profit 501(c)(3) organization in a specific occupation. It is important not to assume you will receive loan forgiveness because jobs can change. Feel free to apply if you believe you qualify, but do not count on this as a service and be prepared to pay back all of your loans in full.

Making Extra Payments to the Wrong Loan. Making extra payments on your loan is a great step to take. Make sure those payments are helping you the most and being applied to the right loan. Regardless of the size of the loans, make the extra payments to the loan that has the highest interest rate.

Refinancing Student Loans. Refinancing student loans does not always save you money or get you a lower interest rate. You lose options when refinancing and it is important you know the drawbacks and the state of all your student loans.

Lastly, avoid taking on additional debt with your student loans. Make paying off your student loans a priority. Doing so will free up your money and lift some stress from your shoulders.


A good place to start:

See the best 529 plans, personalized for you