Student debt comes in all shapes and sizes, but everyone should be concerned with their student loans, whether their balances are big or small. It doesn't matter if you have competitive rates and will be free of debt with very little effort, or if decades of monthly payments stand in the way of your financial freedom -- staying proactive and being mindful of your debt is always the best option.
At Credible,we help thousands of graduates each week looking for ways to save on their loans. Some come to our website with sizable debt loads in an earnest search for relief, while others are simply wondering if they could be saving money.
We've spent countless hours learning from grads with student debt, so we have a pretty solid idea of the misconceptions and stumbling points when it comes to managing your loans. Here are some of the most common mistakes people make:
1. Not doing their homework
Understanding the basics of who services your student loans and how to access all of your loan statements is very important aspect of life with student debt, even if it isn't very exciting. Many servicers offer auto-debit or loyalty discounts that can reduce your monthly interest payment, as well as offer specific repayment plans -- but many graduates aren't even aware that these programs exist. Make sure you know who services your loans, how to access your statements and what programs are offered through your servicer.
2. Not prepaying when appropriate
Most graduates do not realize that prepaying their student loans is generally penalty free. Adding an extra $50 each month will go directly to the principal and help you reduce your student loan debt that much faster. If you don't already prepay and can spare an extra little bit each month, consider prepaying today.
3. Underestimating the impact of interest on their debt
Many borrowers do not realize just how much of an impact interest has on a student loan. For example, on a $30,000 loan, your lifetime out of pocket cost will be close to $50,000 assuming an average interest rate and a 15-year term. Do some basic math to calculate your total lifetime payments -- you might think twice next time you want to go shopping or plan a trip.
4. Neglecting their loans completely
Staying current with your student loans is of utmost importance. Allowing a loan to enter default will likely impact your credit and hurt your ability to make other significant purchases later in life. Make sure that you make timely monthly payments to help establish a strong credit history.
5. Overlooking forgiveness options
There are a number of profession-specific loan forgiveness programs to help reduce your student debt. Doctors, dentists, lawyers, MBA graduates, nurses, teachers and many others, all have extensive options when it comes to loan forgiveness. Although many of these require you to work in the public or non-profit sectors, where salaries tend to be lower, many of the programs offer significant forgiveness awards. Check out your forgiveness options before you start paying off your loans.
6. Forgetting to refinance your student loans
You may be able to reduce the interest rate on your loan after you graduate and take advantage of the record-low interest rates available today. Most government loans offer a one-size fits all interest rate, so you may be paying at a higher rate than you deserve. Once you establish a solid credit history and start earning a steady income you may be able to get a more competitive interest rate on your loans.Don't settle with the original rate on your loan -- there are many lenders on the market today that can offer a better rate, so check out Credible to see what options may be available to you.