Top 5 Mistakes Millennials Make with Student Loans
By Nick Demeester
GreenPath Student Loan Counseling Manager
If you are a recent graduate or young professional, you may have significant student loan debt. You might be overwhelmed with the idea of how much you owe and are struggling to make your payments. Like many other millennials, you may be strapped for cash and do not know how to make any progress.
Being short on money and facing debt can be scary, and it can lead many people to make mistakes managing their loans. However, these common errors can end up costing you thousands of dollars and even harm your financial future.
Here are the top five mistakes millennials make when it comes to their student loans:
- They underestimate their payments. According to a recent study, 60% of students underestimate their monthly student loan payments and how much of their income will go towards their debt. After graduation, you may have gotten your first apartment or purchased a car. If you did not account for your student loan payments, your budget would be blown and you would risk defaulting on your loans or missing rent and car payments.
- They do not know their interest rates. In the same study, 30% of students were not aware of their interest rates. Your interest rate has a huge impact on how much money you’ll pay back over time. A higher interest rate can add thousands of dollars to your balance. There are ways to bring your rate down; for many loans, setting up automatic payments can shave the percentage down by .25%, and when you make a certain amount of payments on-time, you’ll be awarded another .25% discount on interest. While that may sound tiny, that can add up to significant savings. More of your money can go towards the principal instead of interest.
- They are not aware of their repayment options. Nearly 30% of millennials with student loans are currently in default. However, a huge portion of people missing payments had other repayment options they did not use. Approximately half of those millennials who missed payments were eligible for modified repayment plans based on income, meaning their payments could have been much lower and more affordable. Understanding your options can help stretch your dollars and keep you from getting behind on your loans.
- They miss out on valuable tax deductions. Many recent graduates do not realize that their student loan interest is tax deductible, and they pay more money than they should. If you’ve been making student loan payments, you can lower your tax bill by deducting up to $2,500 in student loan interest on your taxes.
- They do not know where to go for help. Many young professionals do not know that they can get help for managing their student loans. If you cannot afford your payments, don’t know which student loan payment plan is best for your situation or are considering consolidation, a trained professional can help you navigate the process and come up with a comprehensive plan for moving forward. You will be armed with the information you need to make informed decisions. By understanding your options, you’ll be empowered to start building a more secure future.
Student loans can be overwhelming, but with some research and planning, you can pay down your debt and start saving for your other needs. For more information, reach out to GreenPath Student Loan Counseling Services at (855) 400-3718 or clicking on this link, here.