For most of us, student loans are our first experience with debt. Paying them back can feel like by trial by fire as we balance payments, living expenses, and other financial obligations for the first time.
There are no training wheels with student loans. Mistakes can cost you big time, both in terms of your credit report and your wallet.
We talked to several recent grads about what they wished they’d known about repaying their loans. Consider their hard-earned lessons so you can avoid these potential pitfalls in your own loan repayment process.
1. Know what you owe
When Joni Sweet graduated from college in 2011, she thought she knew her loan balance. But later, she discovered that her balance was actually double what she’d originally thought.
“My private loans and federal loans, while provided by the same lender, were listed in two separate areas,” said Sweet, who’s now a New York-based writer and editor. “I’m not sure how I made such an error, but I was shocked once I figured out just how much I owe.”
Look over your loan statements carefully; if you’re unsure you’re reading them correctly, have someone review them with you.
Sweet also wishes she’d kept all her communication with her student loan servicer in writing. “Email might take longer than a phone call, but there’s a record of what’s been said,” she noted. “Whether I’ve been lied to or just given misinformation by the customer service reps, I’m not sure, but it has been a headache trying to get [my lender] to stand behind what their reps have told me on the phone.”
2. Don’t forget to factor in interest
Similar to Sweet, 2007 graduate Kristen Hicks thought she understood the borrowing process until it came time to pay back her loans (which are both federal and private), including both principal and interest.
“My parents are pretty financially savvy,” she explained. “One’s an accountant, one’s a banker. I felt like I knew what I was getting into, but I was taken aback by the amount of interest. The two numbers were pretty close to equal.”
Even knowing what she knows now, Hicks isn’t sure she would have done anything differently. She’s not sure that working more hours during college (to reduce the amount she had to borrow or to make interest-only payments) would have been feasible. However, she did consolidate her loans and started making extra payments as soon as she had the money to do so.
3. Interest accrues even during deferment
After finishing an associate’s degree, a bachelor’s degree, and two master’s degrees, Cindy Leonard had borrowed about $135,000 in principal (all in federal loans).
“I always took out the maximum amount possible so I would get a big student loan refund each semester,” she explained.
Leonard and her husband “had been wanting to buy a house for a long time and were unable to save up for a down payment with all of our extra income going to the student loan payments,” said Leonard, who now works for a nonprofit. “So, I requested a deferment for a year, which put close to $800/month in our pockets for a time.”
That was about a year ago; the couple closed on a home in December, but Leonard also learned that unless she paid interest during her deferment, the lender would capitalize it.
“They sent me a letter asking for $17,000 in interest payment on my consolidated loan, which clearly I couldn’t pay, because if I had that kind of money I wouldn’t have asked for a deferment in the first place,” she said. “Now I’m $197,000 in student loan debt.”
In retrospect, she feels that a bachelor’s degree and MBA would have been sufficient rather than an associate’s and second master’s. She also wishes that colleges would provide a mandatory workshop on personal finance to freshman. “The literature you get with your first student loan and promissory note doesn’t really cut it,” she said.
4. One missed payment can cost you big bucks
Missing student loan payments can damage your credit and tack on additional fees.
AJ Saleem, who now manages Suprex Learning, a tutoring company in Houston, learned this the hard way. “I simply missed one payment because I did not have the cash in my account at that time and I had to deal with a ton of fees,” he said.
“Now that I know about delinquencies, I would be more inclined to do automatic payments rather than manual payments. I would also keep more money in reserve so when I do have an issue, I can immediately know rather than finding out and paying additional fees.”
He wound up paying close to double the interest on that payment, but fortunately, it was only one time and his credit didn’t take a major hit.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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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 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% 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 Month/Day/Year, 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 08/21/18. 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@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 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
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
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.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). 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 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.57% – 6.97%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|