The high cost of college has made it necessary for many students to take out educational loans. If you’re one of them, there are some things you should avoid doing so you don’t get into a financial mess.
Here are five of the worst student loan mistakes to avoid.
1. Ignoring your bills
One thing you don’t want to do is ignore bills from your student loan servicer. If you think you might not be able to make payments, immediately contact your lender. Student loan debt won’t just go away. If you default on federal student loans, you’ll likely lose your tax refund and even face garnishment of wages. Your credit score will also suffer. A federal student loan is considered to be in default if payments aren’t made for at least 270 days (roughly nine months).
2. Making late payments
Don’t make a habit of submitting late payments. Your account will be considered delinquent the day after your missed payment. The account retains a delinquent status until the past due amount is paid or you arrange for a deferment, forbearance, or a different repayment plan.
If your payment is more than 90 days late, your loan servicer will report the account to the three major credit bureaus (Equifax, Experian, and TransUnion). Your best bet is to enroll in autopay. This way, you’ll be on time. Furthermore, some lenders offer a discount on the interest rate if you give them permission to automatically deduct payments from your bank account.
3. Borrowing more money than you need
Refrain from taking out a larger loan than is necessary. Taking more money means it will just take longer for you to pay the loan back. Consequently, you’ll end up making more interest payments over the life of the loan. Borrow as little as possible and try to make up the difference with grants, scholarships, and money from side jobs.
4. Paying for student loan help
There are some companies that advertise student loan help for a fee. However, you can get help with your loan for free by speaking directly to your student loan servicer. Don’t pay for a service you can get free of charge. Besides, that money should be going toward your loans.
5. Not making extra payments
When you can, it pays to put extra money toward your student loan balance. Remember that interest accrues on a daily basis, so every dollar helps. Pay down your debt faster by instructing your lender not to put the additional payment toward any future payments (this is so you can pay down the principal), and to put extra payments toward the loan with the highest interest rate.
Tips for taking control of your student loans
- Contact your student loan servicer as soon as you start having trouble making repayments.
- Learn as much as you can about how student loans work. Specifically, learn about the different repayment plans. You could significantly reduce your monthly payments by switching to a repayment plan that matches your ability to pay. Call your student loan servicer and ask about your options.
- Explore loan forgiveness programs. Professionals working in certain occupations are given a break if they meet the requirements. Teachers, veterinarians, and nurses are just some of the professionals that may qualify for loan forgiveness.
Check out The Cheat Sheet on Facebook!