The entire student loan process can be overwhelming, especially when you are presented with all the terms and conditions in the tiniest font possible. Like most people, you probably just glazed over the financial terms and conditions, not really knowing what it all meant.
Although managing your student loans can feel extremely difficult, having a positive attitude can go a long way. That being said, if you’re stuck with student loans that you’re responsible for paying back, it’s no use complaining or making excuses about the situation. It oftentimes leads to no action or worse, actions that in the long run hurt you and would be considered big mistakes financially! Student loan repayment mistakes are no joke because they can negatively impact your credit history and credit score for many years. Many older Americans say their biggest financial regret was student loans. So make sure to read carefully through the 3 biggest mistakes you could be making with student loans and take notes on how to prevent them!
Mistake number 1: Not knowing your student loan details, including your online log-in information
This is simply unacceptable in the 21st century! Nobody even has to walk to the bank anymore in 2019 if they don’t want to because you can access your banking account through a phone or computer. Similar to online shopping rather than in person, you can log into your student loan account on your phone or laptop in just a few seconds (literally) and find every detail about your loan. There is just no excuse for anyone to not know the answers to a few basic questions about their loans. So, what are the main things you need to know?
- How do you log-in for online access to your account? You’ll need a website, your username, and your password.
- How much did you borrow, to begin with? That’s called your principal balance.
- How fast is your debt growing each year? That’s called your interest rate.
- What type of loan do you have? Federal or private? Subsidized or unsubsidized?
Mistake number 2: Paying the minimum required amount on your student loans without exploring other options.
This is a very common mistake that most people make. Six months after graduation you officially get your first student loan bill in the mail that requires a minimum payment. If you don’t send that payment in on time or call to set up a different payment plan with your loan provider, then your credit will take a hit. But, the reality is that most students don’t give much thought to repaying student loans until that bill actually does come in. And that means that often times when it does arrive in the mail or via email, many people choose to just do the bare minimum required and submit the minimum payment shown on the bill. But, paying the minimum on your loans makes your debt increase over time because your payments are not big enough to cover the interest fees that have accrued. This is especially bad for those people out there who don’t even know that this is happening! You think you’re doing the right thing by paying your monthly bills on time but don’t realize how much the fees are affecting the balance due on your loan each month. It’s terrible!
Now, there are many people who do choose to focus more on having a low monthly payment amount rather than having the lowest total loan amount paid at the end of the day! But this is not recommended by ANY financial professional anywhere! You can avoid this mistake by always sending more than the minimum amount due on any bill you get especially if/when you can afford it. However, if you’re struggling financially, you can certainly set up an income-driven repayment plan – but it’s important to view this as a form of government assistance that you should only use temporarily and hustle to increase your income or cut down your spending so that you can make normal payments again. This is the only way to guarantee that you’ll get out of debt as fast as possible, while simultaneously saving money by paying less in interest fees over the lifetime of your loan!
Mistake number 3: Assuming you will get student loan forgiveness.
Whether it’s making minimum payments and waiting for your 20 years of payments to go by or crossing your fingers that you’ll qualify for the federal student loan forgiveness program – relying on these options is dangerous! This is not to say it’s impossible to qualify, but just to point out that it’s a very unlikely case. The actual mistake here is assuming that the programs will apply to your situation rather than verifying that this will be the case. The verification process will definitely require you to be on the phone for some time getting answers to lots of questions and hearing what your loan provider has to say about your situation. But, it’s worth it to make sure that you understand every step you need to take and every document you need to submit by what dates in order to qualify for these forgiveness programs.
I know teachers who taught for 10+ years and assumed that their student loans would be forgiven but that’s not how the program works. You need to complete paperwork every year to verify your job is still in place and your employer might even need to sign off on certain documents before you submit them so this process is not simple nor guaranteed. Finally, the reality is that even if your loans ARE forgiven, you will still have to pay taxes on the total forgiven amount of loans, which is something that many people are not aware of. And if you have an above average amount of student loan debt, then that’s a FAT tax bill!
The bottom line is when it comes to your student loans, you need to be PROACTIVE instead of reactive and take initiative to educate yourself on your situation because the truth is that nobody owes you anything after you graduate college with debt. On the contrary, you are the one who owes money to a company or the government, and there is nothing more serious than that. In case you still don’t feel the seriousness of this whole student loan debt thing, I’ll leave you with this… Even if you file for bankruptcy, all of your debts are wiped away EXCEPT for student loan debt!