My College Funding Mistake: Taking Student Loans Even Though I Had a Scholarship

Miranda Marquit

Updated on October 26, 2016

October 26, 2016March 13, 2020Paying for CollegeFeatured, Student Loan Repayment, Student Loans880Miranda Marquit

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

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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.

Bottom line

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?

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Lender	Variable APR	Eligibility
	1.09% – 11.98%¹	Undergraduate, Graduate, and Parents	Visit College Ave
	1.25% – 11.10%^*,2	Undergraduate and Graduate	Visit SallieMae
	1.24% – 11.99%³	Undergraduate and Graduate	Visit Discover
	1.05% – 11.44%⁴	Undergraduate, Graduate, and Parents	Visit Earnest
	1.78% – 11.89%⁵	Undergraduate and Graduate	Visit SoFi
	2.69% – 12.98%⁶	Undergraduate and Graduate	Visit Ascent
	3.52% – 9.50%⁷	Undergraduate and Graduate	Visit CommonBond
^* 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. ¹ Important Disclosures for College Ave. CollegeAve Disclosures College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a first year graduate student borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.10% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $141.66 while in the repayment period, for a total amount of payments of $16,699.21. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 11/2/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term. ² Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply. ³ Important Disclosures for Discover. Discover Disclosures Aggregate loan limits apply. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions. Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and Auto Debit Reward. The interest rate ranges represent the lowest and highest interest rates offered on Discover student loans, including undergraduate and graduate loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of October 1, 2020. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to customers with the best credit and other factors. Your APR will be determined after you apply. It will be based on your credit history, which repayment option you choose and other factors, including your cosigner’s credit history (if applicable). Learn more about Discover Student Loans interest rates. Lowest APRs shown for the Discover Private Consolidation Loan are available for the most creditworthy applicants and include a 0.25% interest rate reduction while enrolled in automatic payments.The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of October 1, 2020. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to customers with the best credit and other factors. Your APR will be determined after you apply. It will be based on your credit history, which repayment option you choose and other factors, including your cosigner’s credit history (if applicable). Visit Discover.com/student-loans/consolidation for more information, including up-to-date interest rates and APRs. Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. ⁴ Important Disclosures for Earnest. Earnest Disclosures Rates include 0.25% Auto Pay Discount Explanation of Rates “With Autopay” (APD) Rates shown include 0.25% APR discount when client agrees to make monthly principal and interest payments by automatic electronic payment. Use of autopay is not required to receive an Earnest loan. Available Terms For Cosigned loans – 5, 7, 10, 12, 15 years. Primary Only – 10, 12, 15 years In school deferred payment is not available in AL, AZ, CA, FL, MA, MD, MI, ND, NY, PA, and WA). ⁵ Important Disclosures for SoFi. sofiDisclosures UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.88% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.78% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.52% APR (with autopay), variable rates from 1.95% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.88% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 11/04/2020. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org). ⁶ Important Disclosures for Ascent. Ascent Disclosures 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. Competitive variable rates calculated monthly at the time of loan approval based on a margin plus the 1-Month London Interbank Offered Rate (LIBOR) rounded to the nearest 1/100th of a percent. The current LIBOR is 0.152%, which may adjust monthly. Your interest rate may increase or decrease, based on LIBOR monthly changes. Rates are effective as of 11/01/2020 and reflect an Automatic Payment Discount. Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month.(See Automatic Payment Discount Terms & Conditions.) Undergraduate Loans: Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 2.69% and 12.98%. Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 3.58% and 14.50%. Rates reflect an Automatic Payment Discount of 0.25% on the lowest offered rate and a 2.00% discount on the highest offered rate. The following table shows a 48 month in-school period plus 9 months of grace prior to a full repayment term of either: 60-months (lowest fixed/variable rate), 144-months (highest fixed rate) or 180-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options.((See Undergraduate Loan repayment examples.) Graduate Loans (Graduate, MBA & Law): Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 3.65% and 12.40%. Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 4.62% and 13.54%. Rates reflect an Automatic Payment Discount of 0.25%. The following table shows a 36 month in-school period plus 9 months of grace prior to a full repayment term of either: 84-months (lowest fixed/variable rate), 144-months (highest fixed rate), or 180-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options. (See Graduate Loan repayment examples.) Medical: Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 3.65% and 12.40%. Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 4.62% and 13.54%. Rates reflect an Automatic Payment Discount of 0.25%. The following table shows a 48 month in-school period plus 36 months of grace prior to a full repayment term of either: 84-months (lowest fixed/variable rate), 144-months (highest fixed rate), or 240-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options. (See Medical Loan repayment examples.) Payments may be deferred. Subject to lender discretion, forbearance and/or deferment options may be available for borrowers who are encountering financial distress. Making interest only or partial interest payments while in school will not reduce the principal balance of the loan. There are three (3) flexible in-school repayment options that include fully deferred, interest only and $25 minimum repayment. (See Undergraduate Loan repayment examples.) Flexible repayment plans may be offered up to a fifteen (15) year repayment term for a variable rate loan and ten (10) year repayment term for a fixed rate loan. Students must be enrolled at least half-time at an eligible school. Minimum loan amount is $2,000. Interest rate reduction of either 0.25% (for Credit-Based Loans) or 2.00% (for Undergraduate Future Income-Based Loans) applies only when the borrower and/or cosigner sign up for automatic payments and the payment amount is successfully deducted from the designated bank account each month. The amount of the discount is dependent upon the loan product and credit history of the borrower at the time of application. Interest rate reduction(s) will not apply during periods when no payment is due, including periods of in-school, deferment, grace or forbearance, unless a regular payment amount has been arranged with the servicer. If you have two (2) consecutive returned payments for Nonsufficient Funds, we may cancel your automatic debit enrollment and you will lose the interest rate reduction. You will then need to re-qualify and re-enroll in automatic debit payments to receive the interest rate reduction.(See Automatic Payment Discount Terms & Conditions.) All applicants (individual and cosigner) are required to complete a brief online financial literacy course as part of the application process to be eligible for funding. Eligibility, loan amount and other loan terms are dependent on several factors, which may include: loan product, other financial aid, creditworthiness, school, program, graduation date, major, cost of attendance and other factors. Aggregate loan limits may apply. The cost of attendance is determined and certified by the educational institution. The legal age for entering into contracts is eighteen (18) years of age in every state except Alabama where it is nineteen (19) years old, Nebraska where it is nineteen (19) years old (only for wards of the state), and Mississippi and Puerto Rico where it is twenty-one (21) years old. 1% Cash Back Graduation Reward subject to terms and conditions. Click here for details. In order to be eligible for the 1% Cash Back Graduation Reward, borrower must meet the following criteria after graduation: The student borrower has graduated from the degree program that the loan was used to fund. The student borrower may change majors and/or transfer to a different school, but must obtain the same level of degree (e.g. – undergraduate or graduate) The graduation date is more than 90 days and less than five (5) years after the date of the loan’s first disbursement. Any loan that the student has borrowed under the Ascent loan is not more than 30-days delinquent or in a default status as of the graduation date and until any Graduation Reward is paid. Students can apply to release their cosigner and continue with the loan in only their name after making the first 24 consecutive regularly scheduled full principal and interest payments on-time and meeting the other eligibility criteria to qualify for the loan without a cosigner. * Application times vary depending on the applicant’s ability to supply the necessary information for submission. ⁷ Important Disclosures for CommonBond. CommonBond Disclosures Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.17% effective Sep 1, 2020 and may increase after consummation.