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Common Mistakes That Make Student Loans Hard To Handle

It’s easy to finger colleges’ runaway tuition costs for America’s student debt crisis, but borrowers aren’t always blameless. Four mistakes students make with student loans that can make paying for school unnecessarily more costly.

Student loan mistakes that make repaying harder than it has to be.The fact that we’re in a student loan crisis is nothing new; in a recent post I reported that as of the end of 2013, the figure had reached $1.08 trillion. Compare that to the total outstanding revolving debt in the U.S. (which includes credit cards): That amount at the end of 2013 stood at $857.6 billion, according to the U.S. Federal Reserve.

If you consider the credit card side of the equation, it might surprise you to see how quickly grads and undergrads get themselves in a hole. The U.S. Trade and Development Agency says that students are particularly likely to have multiple credit cards. The average credit card debt of a new graduate is $4,100, with about 20 percent of graduates having credit card debt of more than $7,000 dollars.

But student loans are simpler to parse, right? A student loan is a student loan, and that money is easy enough to repay once you get out of school and get a job, correct?


“A student loan debt isn’t necessarily a bad thing, especially if it’s helping to fund an education that will pay dividends for the next several decades in the form of a higher income,” says Eric Adamowsky, founder of CreditCardInsider.com. “But there are several mistakes students make regarding the use of student loans and they can be easily avoided.”

Financial gurus agree that even a modest sum of student loan money can turn into a monumental headache faster than you can say “cap and gown.” True, it’s not as though college seniors go to Vegas and bet a lump sum of loan dough on blackjack.

But when it comes to what’s actually going on, the folks at SoFi advise, among other things, that graduates should avoid unnecessarily extending their repayment periods (which can make interest charges soar) or not prepaying when possible.

Here are four mistakes Adamowsky identifies, with advice on how to avoid them:

Using only loans to fund every aspect of college.

Adamowsky stresses that with all the grants, scholarships and award money out there, a student can easily defray loan costs with a little extra effort. So take action: “You may even qualify for scholarships based on some aspect of your heritage, health or religion,” he says. “Though these scholarships are usually a few hundred dollars, there’s no limit to how many you can try to secure — and you never have to pay them back.”

Not researching school price tags.

Beyond tuition itself, there are many other costs associated with college or grad school. Colleges may stipulate, for example, that you live on campus, purchase a certain food plan or supply your own computer technology. Parking and transportation rank among the other extras you may fail to consider. But there’s one way to save money that Adamowsky recommends: “If you can take basic courses at a community college near home on academic breaks — and their credits will transfer — you may be able to save several thousands of dollars.” Forget the snob factor, as he points out that “no employer cares where you took English 101. … Besides, it’s the school name on your diploma that really matters, at least for your first and maybe second job.”

Another idea: See if you can live with a relative or friend near campus and save on rent. You may need a special waiver to do this, but claiming financial hardship (especially if you’re looking at six-figure debt) isn’t exactly a stretch.

Not completing the FAFSA in January.

There are two mistakes students make with FAFSA, the Free Application for Federal Student Aid. One is not completing the form for every year they intend to borrow for school. Another is that some students make the mistake of not applying at all because they think that their families make too much money to get government-backed student loans. Adamowsky says not to assume anything, and just apply, because need is based on a complex algorithm that examines more than family income.

“Federal-backed student loans are the best you’ll find in terms of interest rate, grace period, and flexible repayment plans,” he says.

Not viewing student loans as a serious debt.

Did you know that bankruptcy won’t necessarily make student loan debt go away? Student loans are difficult to discharge in bankruptcy, according to the non-profit Student Loan Borrower Assistance Project, a program of the National Consumer Law Center. “To do so, you must show that payment of the debt ‘will impose an undue hardship on you and your dependents.’”

“Because student loans aren’t always considered to be as ‘bad’ a debt as credit cards, eliminating them can be low on a borrower’s financial priorities list,” Adamowsky says. He suggests you plan to make them a high priority from Day One: “Your repayment plan for student loans should be as strategic and aggressive as for any debt you carry—especially if you have income left at the end of the month to put towards it.”

Now, imagine you’re back in class for a moment and your professor asks you the proverbial question, “Can you think of other examples?”

We found a compelling story — and from an employee at U.S. Department of Education’s office of Federal Student Aid. Nicole Callahan relates, for example, that she didn’t figure out her monthly loan installments before she went into repayment. She links to this repayment estimator to help you avoid her gaffe. (Nicole’s story is on Home Room, the official blog of the DOE, and you can read it here.)

When it comes to student loans, what mistakes have you made? If you could, what would you do differently? Let us know in a comment.

Published or updated on July 7, 2014

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About Lou Carlozo

Based in Chicago, Lou Carlozo is a personal finance contributor for Reuters Money, a columnist with DealNews.com, and a former managing editor at AOL's WalletPop.com. Contact him with story ideas for Money Under 30 at feedbacker@aol.com, or follow him via LinkedIn and Twitter (@LouCarlozo63).


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  1. Erin says:

    Taking out more than you need. Just because your award amount is $10k a year doesn’t mean you should take it all, especially if your tuition is cheaper than that. Those “refunds” were addictive, but it’s hard to remember it’s not free money–you have to pay it back.

  2. Having a plan about students loans is the best thing I did for my loans (and the biggest mistake I see others not doing). I had a plan before, during and now after school to get rid of my loans ASAP. As much as I hate paying such a high payment, I have to love my loans because they allow me to be in my profession. I would not have been able to go to school without them.

  3. Speak Your Mind