Your 20s are a time of education, growth, fun, and change. I’m 28 now, and it’s hard to believe that in the last 8 years, I’ve graduated from college, finished graduate school, gotten married, started a business, and had two children.
That’s a lot for one short period of time, and when I put it like that, it sounds as though the last 8 years have been pretty successful. What you don’t know, though, is that I made some big mistakes.
I made several big student loan mistakes. I borrowed way too much, around $39,000 actually, and now—at 28—I’m trying hard to pay it all back. The reason I consider this too much money is because my degrees are in history, a traditionally low-paying field.
My first job out of graduate school paid $25,000 a year, and on such a low salary, the $300/month payments were difficult. I’m not alone.
A 2012 New York Times article showed that 66% of students took out federal or private loans for college, and the number is only growing.
So, if you’re one of the many people in your 20s taking out student loans, make sure that you’re avoiding the following four big student loan mistakes so you can enjoy your 20s and not be burdened by too much debt when you graduate.
1. Being Unaware of Your Loan Balance
When I graduated from college, I decided to finally sit down and figure out how many student loans I had.
At first, I didn’t even know how to find out. Did I call my school? Did I just check my credit report? I honestly had no idea where to start. After a few calls to financial aid, I got all the information I needed from the Federal Student Aid database.
Then, I learned I had taken out $14,000 in undergraduate loans. Somehow, the $1,000 here and $2,000 there throughout my college didn’t seem like $14,000, but it added up.
I ended up going to graduate school before I had to make a payment, but I had no idea that that $14,000 would turn into a payment of around $100 or more depending on my repayment plan after I graduated.
Don’t make this mistake. Even if you’re nervous about it or know the number is large when you graduate, sit down and calculate your debt anyway. It’s the first step you need to take to begin to pay it off.
2. Ignoring Student Loan Payments
When you graduate from college, you will eventually start to get bills for your student loans. Many students get these bills and don’t pay attention to due dates. Many more see those high figures and get scared they won’t be able to pay it, so they ignore their student loans thinking they’ll just go away. Please don’t do this.
Remember, there are many different repayment options when it comes to federal student loans, including income-driven plans. So if the number on your bill is larger than what you can afford, call your loan servicer. Work with them to find a way to lower your payments until you can increase your income.
I know it’s a difficult call to make, but it’s better than ignoring it. The last thing you want is for your student loans to go into default because you haven’t paid them. This can have serious repercussions, including wage garnishment. It can also ruin your credit, and that, in turn, can have negative effects in the future when you want to buy a car or a house.
3. Choosing the Wrong Repayment Plan
There are so many different types of repayment plans available to graduates that I didn’t even know existed. In fact, choosing the wrong repayment plan is one of the biggest student loan mistakes graduates make.
If I had known about this strategy, I might have enrolled in a graduated repayment plan to give myself time until my income increased. After all, it’s much better to have a payment you can afford instead of going into default.
You also want to see if your job qualifies for certain types of loan forgiveness such as Public Service Loan Forgiveness and Teacher Loan Forgiveness. There are even loan forgiveness options for people who go on to professional schools like medical school and law school.
Don’t assume that you will have to pay high student loan payments every month for years on end. Instead, take the time to do the research and find out how you can reduce your student loan payments if you’re struggling, or spend some time getting your finances in order so that you can pay off those pesky student loans quickly.
4. Using Your Student Loans for Spring Break
My husband jokingly called us “fake rich” when our student loans came through—it sure felt that way when several thousand dollars got deposited in our account in one day. Having a large lump sum in your account is not a problem when you know how much you’re going to have to allocate to books, housing, and other academic expenses.
It is a problem, though, when you use your student loan balance for things that aren’t exactly school related—like spring break, nice clothes, or big nights out on the town.
The truth is many students use their student loans as spending money, and that’s definitely a mistake. You don’t want to buy clothes or pay for outings that aren’t school related with your loans because you’ll be paying for those things for years after you graduate.
Instead, try to work a side job in college and use that money to pay for life’s little and not-so-little extras. Then, keep your student loan balance as low as possible and only pay for necessary expenses.
Have you made any student loan mistakes yourself?
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
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 0.16% effective August 10, 2020.