Avoid these common pitfalls when it comes to your student loans

28 Jan 2020

The process of applying and paying off a student loan can be stressful, and it’s typical for students to make mistakes along the way as they begin their foray into adulthood.

However, there are some common pitfalls to avoid if you’re looking to make things financially easier for yourself in the future.

Here are some steps you can take that will pay off in the long run so you’re not burdened by student loan debt longer than necessary.

Do your research on interest rates

Don’t jump at the first student loan offer you get. While it may be tempting to get it over and done with, failing to do your research means you may be paying higher interest than necessary.

Spend some time doing research into the different interest rates and offers by both government student loans and banks so you’re getting the best deal.

Pay off more than just minimum balance

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Melissa Lockert wrote on Business Insider earlier this month about how she paid off US$81,000 in student loans over nine years.

She wrote that one mistake she made that she wished she hadn’t was paying off only the minimum balance on her student loans.

She advised, “For the first five years of my student-loan repayment, I paid the minimum. I treated it like a bill and didn’t let it bother me. Could I have afforded more? Yes. Ironically, it wasn’t until I took on even more debt going to New York University – graduating with $68,000 left – did I start paying more than the minimum.

“I struggled to make my payments after grad school and wish I had gotten ahead when I could have afforded it. If you can, pay more than the minimum.”

When you start your first job, set aside a budget and work out how much you can pay for your student loans. You may have to cut back on some luxuries, but you’ll be able to pay off your student loan faster.

Not making lump-sum payments

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If your student loan doesn’t have any prepayment penalties, which they typically don’t, it means that you can pay off your student loans any time without the extra fees.

Zack Friedman, Senior Contributor of Personal Finance for Forbes and best-selling author of The Lemonade Life, advised students that whenever they have some extra funds such as pay raise, bonus, tax refund or monetary gift from a parent or grandparent, utilise it wisely to pay off your student loans in a lump-sum payment.

Refinancing your student loan

This sounds like a good thing that will help you save money, but it’s not always the case. According to Cappex, “ Refinancing student loans with a longer repayment term might reduce the monthly payment, but this will actually cost money in the long run.

“Refinancing also might increase the average interest rate. If you have multiple student loans, you can save money by targeting the highest-rate loans for quicker repayment instead of refinancing the loans.”