Student Loan Debt Mistakes to Avoid

Kate Dore

By Kate Dore
Kate Dore is a candidate for CERTIFIED FINANCIAL PLANNER™ certification and founder of, a personal finance site for creative professionals and entrepreneurs.
Posted on 03/03/2018

Student loan debt can feel like being stuck in quicksand. You hustle every day to make on-time monthly payments while sometimes it can seem like your balance never decreases. Whether you are just beginning the debt payoff journey or nearing the finish line, coughing up extra hard-earned dollars can be infuriating. This is why avoiding expensive missteps is so important. Here are five of the most expensive mistakes you may not have thought of—and how to avoid them.

1. Assuming you're on the right repayment plan

Student loans are complex. It's easy to feel overwhelmed when it comes to choosing the right repayment plan. You probably will be making payments for the foreseeable future, so taking some time to compare your options is a worthwhile investment.

Believe it or not, the Department of Education's website is an excellent place to start. They have a number tools—like their repayment estimator—and easy-to-understand charts for comparing different repayment plans. To understand more specifics about debt pay off strategies, check out Society of Grownups' Loan Repayment Calculator.

Once you make an initial decision, don't assume you are set for life. Like any financial plan, changing circumstances—like getting married, earning more money, having kids, or even a shift in financial priorities—will trigger the need for a reevaluation on your repayment plan.

2. Refinancing to private loans without considering your Federal loan options

Itching to reduce your interest rates? Once your income is secure and your credit score is climbing, it may be tempting to shop around for the hottest refinance options. But it shouldn't necessarily be your default choice.

Federal loans offer a number of benefits including deferment or forbearance, income-driven repayment plans, Public Student Loan Forgiveness (PSLF), cancellation or discharge, and more. There are many cases where refinancing with private lenders makes sense, but it's critical to understand the built-in protections you may unknowingly be leaving behind.

3. Not meeting Public Service Loan Forgiveness requirements

Last fall, a gut-wrenching New York Times story about a teacher being denied for loan forgiveness went viral. His issue? Eight years on the wrong repayment plan. And a recent Consumer Financial Protection Bureau (CFPB) report suggests there may be a number of others in the same situation.

If you think you are on track for Public Student Loan Forgiveness, double-check to make sure you are meeting the basic requirements:

  • The right type of full-time job. Being employed by government organizations, 501(c)(3) non-profit organizations, other non-profits offering qualifying public services, or serving full-time as an AmeriCorps or Peace Corps volunteer qualify for PSLF.
  • The right kind of loan. Only Direct Loans in good standing (not in default) qualify for Public Student Loan Forgiveness.
  • The right repayment plan. You need 120 on-time, full payments through one of the income-driven repayment plans to qualify for Public Student Loan Forgiveness. Technically, the 10-year Standard Repayment Plan also qualifies, but there is nothing left to forgive after 120 payments.

Remember, Public Service Loan Forgiveness won't happen automatically. Follow these rules to avoid future heartache.

4. Missing the annual recertification deadline

Loan servicers exist to make money. So it's not surprising when they fail to remind borrowers of a way to pay less—the annual recertification deadline for income-driven repayment plans.

Have you noticed your monthly payments are actually less than the interest accruing on your loan? Income-driven repayment plans keep principal and interest separate. As long as you stay on the plan, you won't be stuck paying interest on interest.

Unfortunately, this benefit goes away the second you miss your annual recertification deadline. There are a number of consequences depending on your plan, and capitalization—unpaid interest being added to your principal—can cost you thousands of extra dollars.

Loan servicers aren't exactly motivated to help you save money. Set your own annual recertification reminders—multiple if necessary—and you won't be slapped with this costly unexpected surprise.

5. Automatically filing taxes jointly if you're married

When you are married, you decide every year whether to file taxes separately or jointly. Most of the time, filing jointly saves money. This is because the IRS offers tax breaks—like a larger standard deduction and higher tax brackets—for married couples.

But filing jointly isn't always the right choice—especially when you are on one of the income-driven repayment plans. These plans use "discretionary income" to calculate how much you have to pay every month. This calculation includes your adjusted gross income (AGI) which is basically everything you earn minus specific deductions.

Because married filing jointly combines both of your AGIs, this could mean higher monthly payments. You can use the Federal Student Aid's repayment estimator to compare both options before making a decision.

Just remember paying less now means more interest will build up over time. Your balance will be wiped clean at the end of your repayment period, but you will need to plan for the income taxes you will owe on this amount.

So what's the right move for you? Well, it depends. This is just one piece of your unique financial picture. A qualified tax professional or financial planner can offer advice based on your family's complete situation.

Our parting advice

We know debt can feel crippling. Whether you are facing ten thousand dollars or six figures of debt—no one wants to pay a single cent more than necessary.

Start by comparing the Federal repayment plans, and don't immediately refinance to private loans before weighing all of your options. You owe it to yourself to examine the built-in Federal loan protections before making a decision. If you are slated for Public Service Loan Forgiveness, be sure you meet every single requirement. As for income-driven repayment plans, watch annual recertification deadlines like a hawk. And don't automatically file taxes jointly if you are married—running the numbers with a qualified tax professional is well worth the added expense.

We understand this a lot of responsibility. But ignoring the problem only makes it worse. Avoiding these student loan mistakes could save you thousands over the life of your loans—helping you become debt-free sooner than you may expect.