We all make mistakes.
I know I’ve made my share of money mistakes, from running up credit card debt to forgetting about quarterly taxes.
One of the biggest mistakes I made as a college student was choosing to use student loans. Even though my student loan interest rate is low, I shouldn’t even have student loans in the first place. I had a full-tuition scholarship and a part-time job on campus. I had no college funding gap.
Choosing to take out unnecessary debt as an undergraduate tied up a portion of my cash flow, and it still occasionally impacts decisions related to my finances. Although I can afford my student loan payments today and I’m comfortable, that wasn’t always the case.
Choosing student loan debt for college funding
Back in the day, it was easy to get federal student loans. I was able to get enough in student loans to cover my tuition and living expenses (I lived on campus), but that didn’t matter so much because I already had the money. My full-tuition scholarship and on-campus job offered more than enough to take care of my needs.
So, how did I use that student loan money? It would be nice to say that I took the money and invested it in a way that would help me reach my future financial goals.
Unfortunately, at the age of 18, I didn’t think about retirement or my future. I rarely looked into the future beyond whether or not I would have the time off and the gas money for next week’s Vegas trip.
Like the two in five students who fund non-education bills with student loans, I used my money for things that I shouldn’t have. I went out to eat. I took weekend trips to Las Vegas. I bought an entirely new wardrobe — and did that with credit cards to boot. I paid bills and bought groceries.
Rather than taking advantage of my scholarship and job to keep me out of debt as an undergraduate, I borrowed to fund my lifestyle. Not only did I choose student loans, but I also used my debt-padded bank account as an excuse to take time off from work frequently. I could have made more money if I didn’t look for reasons to avoid work.
Not one penny went toward my retirement, an emergency fund, or anything remotely useful for my financial future.
How student loan debt set me back
Even though I’m not planning to repay my student loans early, I can still see how my debt set me back financially early on. Just because I’m comfortable with my payments now doesn’t mean I didn’t mess up big time before.
Having that unnecessary student loan debt put pressure on my cash flow. While I was in school, it didn’t matter. I didn’t have to make payments, so I didn’t. I just spent the money. Once I was done with school, though, it was time to pay up.
My new husband and I were poor at the end of my undergraduate experience. As a result, trying to pay my student loans created a cash flow crunch. First, we tried to make it work by using credit cards to cover the gap. That only made things worse.
Eventually, I turned to deferment. While that offered cash flow relief, it extended the time for my student loans and interest kept accruing.
Another consequence of my undergraduate student loans was my debt-to-income ratio. Once I started making a little money and tackling some of my credit card debt, I wanted to be able to do things like get a car loan. Sadly, my debt-to-income ratio made that expensive.
When I applied for a car loan, I barely qualified — and I had to pay a higher interest rate. My debt-to-income ratio looked sketchy. Plus, my credit was in rough shape due to a couple missed student loan payments before I applied for the deferral.
It was disappointing to know that I was paying extra each month in interest because of my student loan debt. Eventually, I refinanced that car loan, but the results of poor credit have haunted me ever since.
All of these issues related to my student loans and my credit also had the effect of delaying my retirement contributions. I felt unable to set money aside for the future while I still struggled with student loans. As a result, I missed out on about four years’ worth compound interest. That’s time my money could have been working on my behalf.
Before you take out student loans for college funding, consider how they could set you back. Surveys indicate that some millennials are putting off big purchases and life milestones because of student loan debt. I know that student loans set me back.
While student loans are increasingly needed to close the college funding gap, carefully consider before you take them out. Take out as little as possible so you don’t derail your future.
It’s hard to think about that when you’re young and someone’s telling you that you can have thousands of dollars. Remember that you have to pay it back.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.06% – 13.06%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.25% – 11.10%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|5.62% – 10.01%7||Undergraduate and Graduate|
|3.93% – 9.81%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|