Common student loan mistakes new graduates make
Updated on November 26, 2020
After graduating from college, you may be focused on finding a job and transitioning from school life to the real world. But if you took out student loans to pay for school, this is also an important time to prepare to devise a comprehensive plan to pay back your loans. Yes, you have a six-month grace period before you have to make payments, but this is a critical planning period. There are many mistakes recent college graduates make during this time, but here are six you must avoid at all costs.
1. Accumulating interest during the six-month grace period
During the six-month grace period, all loans except subsidized federal loans will accrue interest. Although you aren’t required to pay the interest off until your forbearance period, it’s not a good idea to wait because that money is added to the principal. If you are in a financial position to pay, you won’t face a larger payment when you are required to pay.
2. Consolidating loans to save money
There is a misconception that consolidating student loans will save you money. While consolidation can lower your monthly payment, it will only stretch out your payments and not lower your interest rate. Instead, consider privately refinancing your loans, which will make federal loans private but will lower your interest rate.
3. Not paying on time or missing payments
Even the slightest delay in a payment can have a negative impact on your finances. One day after your due date, your loan is considered delinquent. This can cause your credit score to drop, and you will likely face a fee from your lender — only adding to your payment. Either set up automatic payments or recurring calendar reminders to ensure you are making your payments on time.
4. Paying the minimum payment
If you are in the position to make payments larger than the minimum monthly payment, you should certainly do so. This will shorten your payment period and reduce the amount spent toward interest. Just make sure you specify that your extra payment is going toward the principal and not to pay off interest.
5. Thinking your monthly payment is your only option
There are many payment plans you can choose from, including income-driven student loan payment plans, pay as you earn plans, graduated repayment and more. Make sure to research all of these plans to see which fits your financial situation.