5 Things To Avoid When Dealing With Student Loans

If you are planning on attending college, chances are you will need some amount of student loans to help fund your education. Since the average college student will have to take out student loans, it is crucial to understand the pitfalls that many borrowers face. Here are some common mistakes to avoid when considering student loans for college:

1. Applying for Student Loans Before Seeking Out Scholarships and Grants

One of the most significant mistakes students make is rushing to apply for loans without exploring scholarships, grants, or other free funding options. Scholarships and grants are essentially free money for your education—they do not need to be repaid.

Start your search early by using online tools such as scholarship search engines. Additionally, check with your high school, community organizations, and even your employer or parents’ employers for potential scholarship opportunities.

For example, the Federal Pell Grant is available to students with financial need, and many states offer similar grant programs for residents. Taking the time to apply for these can significantly reduce your need for loans.

2. Applying for Private Student Loans Before Filing the FAFSA

Private student loans are not regulated the same way federal student loans are, which makes them a less desirable option for most students. They typically come with higher interest rates, variable terms, and fewer repayment options. Many students turn to private loans without realizing the long-term consequences, such as a lack of eligibility for federal relief or forgiveness programs.

Filing the FAFSA (Free Application for Federal Student Aid) gives you access to federal student loans, which offer much more favorable terms. Federal loans often include fixed interest rates, income-driven repayment plans, and deferment options that private loans do not provide. Max out your federal aid eligibility before even considering private loans.

For example, the Federal Direct Subsidized and Unsubsidized Loans are excellent starting points. These loans provide lower interest rates than most private loans and come with borrower protections, such as deferment and forbearance options.

3. Not Filing a FAFSA at All

A common misconception among students is that they will not qualify for financial aid, so they skip filing the FAFSA altogether. This is a serious mistake. The FAFSA is not just for those with significant financial need—it is the gateway to a wide range of aid, including federal grants, work-study programs, and federal student loans.

Even if you believe your family’s income disqualifies you from grants, you might still be eligible for federal loans, which are often cheaper and more flexible than private loans. Moreover, some schools use FAFSA information to determine eligibility for institutional aid, including scholarships and grants. Missing out on this opportunity could cost you thousands of dollars in potential funding.

FAFSA deadlines vary by state and school, so make sure to check and file on time to maximize your aid eligibility. Completing the FAFSA is free and can be done online in less than an hour.

4. Applying for Private Student Loans Without a Cosigner If You Have Poor or Little Credit

Private student loans are credit-based, meaning your approval and interest rate depend on your creditworthiness. If you have a limited or poor credit history, applying for a private loan without a cosigner is often a waste of time. Most private lenders require a creditworthy cosigner, such as a parent or relative, to approve the loan or secure a favorable interest rate.

A cosigner essentially guarantees the loan on your behalf, sharing responsibility for repayment. This arrangement can help you qualify for a loan or secure a lower interest rate. However, both you and your cosigner should carefully consider the risks involved. If you are unable to repay the loan, your cosigner will be held responsible, which could damage their credit.

To build your credit, consider opening a credit card and paying it off in full each month or taking out a small loan that you can easily repay. Establishing a solid credit history will make it easier to qualify for loans independently in the future.

5. Borrowing More Money Than You Actually Need

Many students are tempted to borrow more money than they need, especially when applying for private loans. Private lenders often allow students to borrow amounts exceeding their direct educational costs, such as tuition and fees. While it may seem convenient to have extra funds for living expenses or other needs, this is a dangerous practice that can lead to unmanageable debt.

Remember, every dollar you borrow will need to be repaid with interest. Overborrowing can quickly escalate your total debt burden, making it difficult to manage repayment after graduation. To avoid this, create a detailed budget that outlines your tuition, fees, and living expenses. Borrow only what is necessary to cover these costs.

For example, if your tuition and fees total $10,000 per year, but your lender approves you for $15,000, resist the urge to take the full amount. Instead, focus on minimizing your debt by working part-time, living at home, or cutting unnecessary expenses.

Additional Tips for Responsible Borrowing

Avoiding these common mistakes is a great start, but here are some additional tips to help you manage student loans responsibly:

• Understand the terms of your loan. Know your interest rate, repayment options, and any potential fees before signing.
• Start making payments while in school, even if it’s just the interest. This can significantly reduce the amount you owe after graduation.
• Explore work-study programs or part-time jobs to supplement your income and reduce your reliance on loans.
• Communicate with your school’s financial aid office if you have questions or need help understanding your options.

Taking out student loans is a significant financial decision that can impact your life for years to come. By avoiding common mistakes such as bypassing free money opportunities, neglecting to file the FAFSA, or overborrowing, you can set yourself up for a brighter financial future. Make informed decisions, borrow only what you need, and take advantage of federal loan protections to keep your debt manageable. With careful planning, you can achieve your educational goals without falling into unmanageable debt.