6 Common Mistakes with Student Loans After Graduation

 November 2, 2020
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The transition from college to the “real world” can be overwhelming, especially if you have to start paying off student loans after graduation.

Although you usually have a grace period of six months before your first payment is due, there’s a lot you can do during that time to prepare. By learning the ins and outs of student loan repayment, you can avoid making the common mistakes that could harm your finances for years to come.

6 common mistakes with student loans after graduation

1. Racking up interest during your grace period
2. Deferring student loans after graduation
3. Consolidating student loans after graduation for the wrong reasons
4. Assuming you’re stuck with your monthly payment
5. Missing payments
6. Paying only the minimum on student loans after graduation
Plus: How to make a plan for paying your student loans after graduation

1. Racking up interest during your grace period

Students with subsidized federal loans are off the hook when it comes to accruing interest during the grace period. Other federal loans, on the other hand, do accrue interest while you’re in school and during the grace period, as well as during forbearance.

It’s true that you don’t have to pay that interest until it’s officially time to start paying your student loans after graduation — but that doesn’t mean it’s a good idea to wait.

Keep in mind that interest accrues daily, and if you don’t pay interest on an unsubsidized student loan, it becomes capitalized — that is, added to the principal balance of your loan. That means your balance will not only get bigger, but you’ll essentially pay interest on your unpaid interest.

If you can afford to do so, make payments toward interest (at least) during the grace period so you’re not faced with an even bigger loan and higher payments when it comes time to start repaying your debt.

2. Deferring student loans after graduation

Federal student loans offer borrowers a generous grace period of six months between graduation and the due date of their first payment. Six months is seen as a sufficient amount of time for new grads to find a job and get their financial ducks in a row.

But six months can go by in a snap, leaving some graduates still unemployed and scrambling to make their first student loan payment. Since deferring payments is one of the perks of federal student loans, it might seem like a no-brainer to apply for a deferment if the grace period doesn’t feel long enough. In fact, unemployment is one of the situations that qualify for a deferment.

However, unsubsidized loans will continue to accrue interest during the deferment period. And although the government will pay your interest on subsidized loans during deferment, it’s still not a great idea to defer them past your grace period if you’re having trouble finding work, since there are limits to the amount of time you can defer student loans due to unemployment (generally a total of three years).

3. Consolidating student loans after graduation for the wrong reasons

Direct consolidation loans allow student loan borrowers to combine multiple federal education loans into a new, single loan. The main reason to consolidate your federal student loans is to trade in multiple monthly payments for a single, convenient payment to one loan servicer — or to get on an income-driven repayment plan if you have certain types of ineligible loans.

Many graduates, however, mistakenly believe that consolidating their student loans will save them money. While consolidation can potentially help lower your monthly payment amount (by stretching out the repayment term of the loan), it will not lower your interest rate.

The new interest rate is the weighted average of the rates on your old loans, rounded up to the nearest one-eighth of a percentage point. Plus, if you extend your repayment term, you might end up with lower payments, but you’ll also pay more in interest over time.

If you’re looking to lower your interest rate, consider private student loan refinancing instead — however, you should note that private refinancing will turn federal loans private, making them ineligible for federal plans and programs.

When considering loan consolidation as you start to pay your student loans after graduation, it’s especially important to understand that this is a free service available via your federal loan servicer — anyone offering to do this on your behalf for a fee could be a scam.

4. Assuming you’re stuck with your monthly payment

The standard repayment plan is the default repayment plan for federal student loan borrowers, the financial equivalent of one-size-fits-most clothing. It assumes the majority of college graduates will be able to land a job that allows them to pay back their loans over a 10-year period.

Just because this plan fits many budgets does not mean it’s definitely right for you. Your repayment plan isn’t written in stone, and you can make monthly payments more affordable if necessary. Specifically, you can apply for any of the following payment plans to lower your payments:

  • Pay As You Earn (PAYE): The PAYE plan allows your monthly payments to be capped at 10% of your discretionary income, and your payments will never be higher than what they would be through the standard repayment plan. Any unpaid balance will be forgiven after 20 years on the program.
  • Revised Pay As You Earn (REPAYE): REPAYE is very similar to PAYE, except more borrowers are eligible. While payments are also capped at 10% of discretionary income, there is no limit to how high payments can be, so it’s possible they end up higher than they would be on the standard plan if your income increases. Here too, the remaining balance will be forgiven after 20 years (for undergraduate loans) or 25 years (for grad school loans).
  • Income-Based Repayment (IBR): The IBR plan caps your monthly payment at 10% or 15% of your discretionary income, depending on when you took out your loans. As with the PAYE plan, you must have a high debt level relative to your income. Your outstanding balance is forgiven after 20 or 25 years, also based on when you borrowed the loan.
  • Income-Contingent Repayment (ICR): An ICR plan caps student loan payments at the lesser of two options: 20% of discretionary income, or what the payment would be on a fixed, 12-year payment plan, adjusted according to income.
  • Graduated repayment: If you anticipate that your income will increase over the years and you really just need a break right now as you get settled in your career, consider a graduated repayment plan. With these plans, your payments start out low, but increase over time — generally every two years. You can expect payments under this type of plan to be spread out over the course of 10 years, which makes it a potentially good option for new grads in fields with strong future earning potential.
  • Extended repayment: Borrowers are allowed to extend their repayment schedule for up to 25 years and make fixed or graduated payments during that time. Just remember that tacking more time onto your repayment timeline means you’ll end up paying more overall for your student loans.

Again, remember that anything which lengthens the term of your loans will cost you more in interest over the long run. To see how much it will cost you, check out our collection of student loan calculators.

5. Missing payments

Missing a single student loan payment may seem like nothing to worry about. But unfortunately, even a single missed payment can potentially have serious repercussions.

First, your loan is considered delinquent the day after your missed due date and it remains delinquent until you make a payment (or receive deferment or forbearance). At that point, you will likely be assessed a late fee by your lender, and you may see a ding on your credit score.

After 270 days of delinquency, your federal loan is considered to be in default — an even more serious situation. With private student loans, default can trigger even sooner.

Setting up automatic payments on your student loans after graduation can be one of the smartest ways to avoid missing your monthly student loan payments. If you are worried about your ability to make a particular month’s payment, contact your lender to see about changing your due date or otherwise tweaking your payment amount to avoid delinquency.

Finally, make sure your lender has your current contact information. That way, if anything goes wrong during your repayment period, they can reach out, and you can find a solution together.

6. Paying only the minimum on student loans after graduation

While some recent college grads might be living off ramen in their parents’ basements, others are lucky enough to step into lucrative careers straight out of the gate. Those graduates might be tempted to spend their hefty paychecks on a lavish home or new car, but they might be better served by sending more money to their student loan servicers.

Making extra payments not only shortens your repayment period, but as we’ve discussed, it also reduces the amount of money you’ll spend in interest. Because of the power of compounding interest, even a modest increase to your student loan payment — such as $100 per month — can have a huge long-term impact. You can run the numbers with our student loan prepayment calculator.

Make a plan for paying your student loans after graduation

Thinking about paying off your student loans after graduation is not nearly as much fun as celebrating your new degree. But taking the time to plan for your student loans can help you avoid the common mistakes that might end up costing you for years to come.

Once you’ve found employment post-graduation, consider setting a budget for yourself that incorporates student loan payments and any other bills. That way, you can enjoy your hard-earned salary while still taking the right steps towards paying off your student debt.

Rebecca Safier and Larissa Runkle contributed to this report.

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Check out the testimonials and our in-depth reviews!
1 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 May 4, 2022.

2 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Student Loan Refinance Interest Rate Disclosure Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 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%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Let us know if you have any questions and feel free to reach out directly to our team.

3 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 0.15% effective Apr 22, 2021 and may increase after consummation.

4 Important Disclosures for SoFi.

SoFi Disclosures

Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. 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. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

5 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.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

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%.


This information is current as of April 29, 2021. Information and rates are subject to change without notice.

6 Important Disclosures for Navient.

Navient Disclosures

You can choose between fixed and variable rates. Fixed interest rates are 2.99% – 8.24% APR (2.74% – 7.99% APR with Auto Pay discount). Starting variable interest rates are 1.99% APR to 8.24% APR (1.74% – 7.99% APR with Auto Pay discount). Variable rates are based on an index, the 30-day Average Secured Overnight Financing Rate (SOFR) plus a margin. Variable rates are reset monthly based on the fluctuation of the index. We do not currently offer variable rate loans in AK, CO, CT, HI, IL, KY, MA, MN, MS, NH, OH, OK, SC, TN, TX, and VA.

7 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 11/15/2021 student loan refinancing rates range from 1.90% APR – 5.25% Variable APR with AutoPay and 2.49% APR – 7.75% Fixed APR with AutoPay.

8 Important Disclosures for PenFed.

PenFed Disclosures

Fixed Rate Loan Terms: 5 years/60 monthly payments, 8 years/96 monthly payments, 12 years/144 monthly payments or 15 years/180 monthly payments. Annual Percentage Rate is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed rates range from 3.29% to 5.43% APR. Rates are subject to change without notice. Fixed APR: Fixed rates will not change during the term. This rate is expressed as an APR. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.