First-Time Student Loan Borrower Mistakes to Avoid

First-Time Student Loan Borrower Mistakes to Avoid
Brazos Staff

BIG Ideas:

  • Understanding college costs and creating a budget can help you avoid overborrowing.
  • Even if you’re unsure if you’ll qualify for aid, complete the FAFSA.
  • If you need a private student loan, compare lenders, fees, and rates carefully.

You’re in the process of college planning, an exciting and busy time in your life. There’s so much to do – from researching schools and programs to understanding all the costs involved and, of course, figuring out how to pay for it all.

Chances are, you’ll need student loans to help you cover the high costs of college.

If you’re a first-time student loan borrower, there’s a lot you’ll need to know about those loans – from the types available and interest rates to repayment terms and the impact that borrowing can have on your finances and your future.

To help you borrow wisely, here are some common pitfalls first-time student loan borrowers should avoid:

Borrowing More Than You Need

Just because the federal government or a private lender may offer you a specific loan amount doesn’t mean you have to borrow it all. Student loan borrowers can determine how much they need by reviewing their financial aid offers and calculating their cost of attendance. Make sure you factor in costs for:

  • Tuition and fees (e.g., lab or activity fees)
  • Room and board (housing and food)
  • Books, supplies, and course materials
  • Transportation (travel to and from school, gas, etc.)
  • Other supplies (laptops, printers, etc.)

Pro tip: Create a budget of how much you’ll need to borrow and stick to it. Also, look for ways to cut your costs, such as becoming a resident assistant or commuting the first two years. 

Skipping the FAFSA

Financial aid can help make college more affordable for student loan borrowers. To apply for it, you must complete the Free Application for Federal Student Aid (FAFSA). Many student loan borrowers won’t take that step because they think they won’t qualify for aid. That’s a mistake since there are other factors considered in financial aid eligibility, such as family size and how many children are in school at the same time.

Completing the FAFSA is also a good idea because you may be eligible for federal grants (which typically don’t have to be repaid) or Work-Study opportunities that allow you to earn money while in school.

Pro tip: Make sure you fill out the FAFSA well before the deadline since some financial aid is awarded on a first-come, first-served basis. Also, be sure to provide accurate and complete information, since FAFSA errors and omissions can delay processing.

Failing to Apply For Other Scholarships and Grants

One way for student loan borrowers to lower the cost of attendance and the amount they need to borrow is to apply for scholarships and grants offered by other organizations. Scholarships are usually free money that you don’t have to pay back and may be awarded based on academics, sports, or other talents you may have.

Pro Tip: Check out these 10 tips for finding scholarships and grants. Also, remember that some scholarships aren’t just for first-year students. You should review opportunities every year and apply. 

Not Comparing Private Lenders and Loans

Private student loans can vary significantly from lender to lender, so student loan borrowers should make sure to shop around and compare:

  • Interest rates and terms – this will impact your monthly payments and the amount of interest you’ll pay over the life of your loan.
  • Loan amounts – to ensure you have enough money to meet your budget and that you’re not borrowing more than you need.
  • Repayment terms – choose a lender that offers the repayment terms you need, like the ability to defer payments until after you graduate if you don’t have the money to pay while you’re in school.
  • Fees and penalties – review the loan documents carefully to make sure you’re aware of all fees, like origination fees, late fees, and pre-payment fees.

Pro Tip: Before choosing a private student loan, compare offers from multiple lenders to find the best overall value. Even small differences in interest rates, fees, or repayment options can significantly affect how much you pay over the life of your loan.

Choosing the Wrong Repayment Plan

When you take out a student loan, you’ll typically have different repayment options to choose from depending on the lender and loan type. These options may include standard repayment, graduated payments, or extended repayment terms. The repayment plan you select will affect both your monthly payment and the total amount of interest you pay over the life of the loan.

In general, the longer your repayment term, the lower your monthly payment will be, but you’ll likely pay more in interest over time. On the other hand, a shorter repayment term usually means higher monthly payments but less interest paid overall.

Pro Tip: Before selecting a repayment plan, review all available options and consider your expected income, budget, and financial goals to choose the plan that best fits your situation.

Planning for college costs is a lot like attending school. It’s important to do your homework and make good choices. That involves understanding the types of student loans, exhausting federal aid first, and choosing the repayment option that works best for you and your budget.

Brazos Can Help You Afford College Costs

For more than 40 years, Brazos has helped make college costs more affordable for student loan borrowers. As a Texas non-profit lender, we offer competitive rates on private student loans that can bridge the gap where financial aid and savings leave off. Contact us to learn more.