I am going to be honest, I really hate thinking about my student loans. It’s tough to think about how much of my monthly income goes to them and how many years I could have left to pay. But do you know what’s worse than thinking about your loans? Ignoring them completely! Ignoring the problem is one of the biggest student loan repayment mistakes that you can make. Unfortunately, there are a number of other repayment mistakes you can make. Hopefully this post will warn you away from making these mistakes!
6 Repayment Mistakes to Avoid with Student Loans
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1) Avoiding your loans altogether
One of the biggest student loan repayment mistakes you can make is ignoring the issue. This can lead to countless problems. One of which is interest accrual. I know about this all too well because I took longer than I should have in college and found a nasty interest surprise when I graduated.
Just because you don’t think about your loans, doesn’t mean they are going to stop growing.
Another problem with ignoring your loans is that you won’t know if your payments have been successful. Did you under or overpay? Did you pay at all? This is a big repayment mistake that you could be making.
Plus, the more you ignore it, the harder it will be to face the problem.
It’s like when you skipped a day of school and then get stressed about it so you skip another day, and then another, and another. It is a vicious cycle. It is scary but you need to deal with it before it gets worse.
Even if you have set it on autopay and forgot about them (another issue I will discuss below), you will never get out ahead of your loans. If you are just making the minimum payment, you will take the full amount of time to pay off your loans.
If you are actively thinking about your loans and trying to even put an extra $5/month, you would save so much money over time.
Finally, if your contact information has changed and you don’t make your lender aware of it, you could miss out on valuable information regarding your payments, issues with your account, or being at risk for default.
Bottom line: Don’t ignore your loans!!
The solution: Start paying attention to your loans. The best way is to organize your loans and set a game plan. Understand what loans you have, who has them, what your payments are and then create a plan of attack!
2) Missing your payments/defaulting on your loans
Missing your payments is a common student loan repayment mistake which can be done accidentally (avoiding your loans!) or sometimes even on purpose because you may not have the money.
This is a big issue because even one missed payment is classified as a delinquency and it can hurt your credit. And don’t forget those late fees!
It can cause trouble if you are on an income-based repayment plan because that payment won’t count towards your 20/25 years repayment term. It also won’t count towards any other loan forgiveness program that you may be on.
The worst case is that it could cause you to default on your loans if you miss 270-360 days’ worth of payments.
Bottom line: Make sure your payments are being made on time!
The solution: Know when your payments are due. If your payments are too high to afford, figure out if you are on the right repayment plan. You may want to switch to an income-based plan or try to refinance to a lower monthly payment. Work with your lender if you are having trouble (forbearance as an example).
3) Relying on bankruptcy
Sometimes, when someone has too much debt and not enough income (or other financial issues) they can declare bankruptcy. You’re property and possessions and some excess income pays off your creditors. The rest that is due is canceled.
However, this does not apply to student loans.
If you are planning to declare bankruptcy for other debts, you need to be aware that your student loans will not be canceled. You have to keep paying them until they are paid off or forgiven under an income-based or other forgiveness plans.
Bottom line: Your student loans won’t be canceled in a bankruptcy
The solution: Again, talk with your lender to discuss your options and figure out the best repayment plan for your situation.
4) Not signing up for autopay/Forgetting about your autopay
Autopay for your student loans can be a great thing. Many companies give you a certain interest rate deduction when you sign up (usually 0.25-0.50%). Hey, anything helps right?
I am on autopay for the private student loan that I refinanced with LendKey in 2016 and one of my federal loans with Navient.
However, you can’t just set it and forget it!
Check your lender’s website after every autopay to make sure that the money came out, it came out in the right amount, and that it was applied to the loan correctly (towards interest and principal).
Some of my federal loans are with MyFedLoan Servicing and I have heard so many horror stories about them taking out DOUBLE your payment and then taking a long time to reimburse you. If you don’t have a big emergency fund or buffer, this could be a big financial hit. For this reason, I have elected not to autopay with them but that is my choice.
Do your homework when looking into autopay with your lender.
Another issue with autopay is that your payment could go up when you submit your annual recertification, if you aren’t prepared and don’t understand your payment, you may take a financial hit with the higher payment.
Bottom line: Autopay can be great for interest rate deductions, but don’t set it and forget it!
The solution: Know when your autopay is due. Check afterword’s to see that the correct amount was taken and that it was applied correctly.
5) Defer/Forbearance for too long without interest payments
When life happens and you temporarily can’t afford your payments, many lenders offer deferment or forbearance. This allows you to temporarily stop making payments without penalties.
Some lenders will allow you to do this in increments up to 12 months. This will also prolong your repayment.
Often there is a “setup” fee for this but it goes toward your loan. For Navient, it was $50 to go into forbearance.
While you are on forbearance, it is important to understand that your interest is still accruing. Even worse is that once the forbearance period is over, any unpaid interest will capitalize and will be added to your principal amount.
If you have a low-interest rate, it may not be so bad, but watch out for those high-interest rates!
Bottom line: Deferment/forbearance can really help you if you are in a tough financial situation, but use it carefully.
The solution: Create a game plan for how long you need this. Try to pay as much interest as you can during this time so that the interest capitalization won’t be as much.
6) Forgetting about interest rate deduction at tax time
Did you know that you can write off some of your student loan interest? You bet you can!
Unfortunately for me and some others, it is capped at $2500/year. I pay over $3000 a year in interest. Ouch!
Still, it is better than nothing and it helps a lot of people, even if you don’t pay that much in interest every year.
Your student loan lender will send you (mail or electronically) your 1099 in January. Don’t make this repayment mistake! Use this information to add in your tax deduction.
If you really struggle with your student loans or want to get ahead, use your tax refund to pay off more of your student loans!
Bottom line: You can save on taxes with the student loan interest you pay
The solution: Enter in your 1099 from your lender(s) into your tax filing system of choice.
There you have it! Six common student loan repayment mistakes to avoid and some solutions you should consider!
One last word of advice is to really get yourself and your finances organized!
I also recommend getting some simple things to help you stay organized. I use a small notebook and some colored pens. If you want to go super full on with it, you can even get a whiteboard and some dry erase markers.
Make your debt tracking fun (even when the debt itself isn’t)! You can also join my free Facebook community if you need some help or are looking for support, inspiration, or just talking to others going through the same thing!
Feeling stuck and frustrated by debt?
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