One thing many members of Gen X and Y have in common is having student loan payments — for several people, they’re a regular monthly bill to contend with. However, there are several mistakes people make when repaying student loans. In a recent survey by Credit Karma, they found that among their 53 million members who carry some kind of debt, 29% carry student loan debt and owe an average of $33,834. And, while the standard repayment term for most federal student loans is 10 years, Credit Karma’s survey discovered that many Americans are still paying them off for decades, with an average of $41,014 per person for ages 43 and up. Furthermore, across every age group Credit Karma examined, student loan debt exceeded credit card debt by multiples — and members between the ages of 22–32 with debt had 14 times more student loan debt than credit card debt.
“As with any debt, repaying your student loans as soon as possible can help you pay less interest and shorten the life of the loan(s),” Maizie Simpson, data and news editor at Credit Karma, tells Pillar. “With that, there are some mistakes people commonly run into with student loan repayments.”
Below, Simpson and other finance experts reveal the most common mistakes people make when repaying student loans.
1. Not Starting To Plan ASAP
Although you may want to pay your student loan(s) off right away, you may get so used to the grace period that you’re thrown off-guard when it comes time to start repaying them. But, Simpson says that although the grace period may seem like a “honeymoon” phase, don’t let yourself get too comfortable. “Instead, use this time to prepare your finances to take on several hundreds of dollars of repayments per month, likely over the next few years,” she says. “Oftentimes, new grads have one final summer before they get full-time jobs in the fall, so stowing away some money from a paid internship or summer job can provide some relief during the first few months you’re adjusting to your starting salary.”
2. Not Keeping Track Of All Your Loans
If you have multiple loans, you may forget about one — or some — of them. “A borrower may have multiple loans out and either miss or make a late payment, due to forgetting about an existing loan,” Reynard Lerot, an enrolled agent at 1-800Accountant, tells Pillar.
3. Not Making Payments On Time
No matter what your reason is for making a late payment — you forgot the due date or forgot to tell the loan servicer your contact information changed — it does more harm than good. “Making a late payment can damage a credit score,” Lerot says.
4. Not Changing Your “Payment Due” Date
One reason why student loans are a problem may be because they’re due when all your other bills are due. However, Simpson says that requesting a new due date — such as mid-month — for your student loan payments can make a difference. “This will help you spread out your payments so that the first of the month doesn’t feel like such a money pit,” she says.
5. Not Saving Money For Other Things, Like An Emergency Fund
Sometimes, people focus so much on repaying student loans that they leave no money for other things, like an emergency fund. Beth Walker, a partner at The Wealth Consulting Group who specializes in college financial planning, agrees. “We’ve been conditioned to believe we’re better off being ‘debt-free’ when, in most instances, we’re better off striking a balance between paying down the loan and setting aside money for emergencies or our future,” she tells Pillar.
6. Not Consolidating Your Loans Yourself
You may think you need to pay a fee to consolidate your student loans, but this isn’t the case, Lerot says. “This can be done without paying a fee — go to StudentLoans.gov,” he says.
7. Not Setting Up Automatic Payments
When it comes to paying bills and saving money, automation is everything — and this goes for your student loan payment(s), too. “As with other debt, repaying your student loans on time and in full each month is important, especially for building your credit; we recommend setting up automatic payments each month,” Simpson says.
8. Not Claiming The Student Loan Interest Deduction On An Individual Income Tax Return
Lerot says to make sure to claim the student loan interest deduction on your taxes. “A borrower may claim up to $2,500 of student loan interest as a deduction, provided certain income thresholds are not exceeded,” he says.
9. Not Understanding The Impact On After-Tax Cash Flow
Walker says that, depending on the circumstances, a couple may end up with more cash flow if they give up the deduction on the student loan interest as a trade for less total taxes paid or less having to be paid in an income-based repayment program (i.e., married filing jointly versus married filing separately).
10. Not Repaying Your Student Loans Quickly Enough
Lerot says that many people choose a repayment plan that is stretched out for too long a period. “While lower monthly payments result from a longer repayment period, you are also paying more interest over the life of the extended loan,” he says.
11. Not Contacting The Federal Student Aid Information Center For Help
Lerot says that a great resource people forget to use is the Federal Student Aid Information Center sponsored by the U.S. Department of Education. You can either call them toll-free at 1-800-4FED-AID (1-800-433-3243), electronically chat with them, or email them.
12. Not Repaying The Loans And Defaulting On Them
Even if you stop repaying your student loans, you won’t be able to escape the debt, Lerot says. “The government can take steps when loans are defaulted — including garnishment of wages, as well as offsetting federal and state income tax refunds,” he says.
13. Not Having Student Loan Debt
There are reasons why student loans are worth it — and not having student loan debt is a mistake, Walker says. “Ten out of 10 parents tell me they don’t want their kids to graduate with debt,” she says. “But true student loans are a great pool of capital for the family to leverage for college.”