This Simple Mistake Could Cost You an Extra $14K on Your Student Loans
When you’re in college, student loans can feel like an unending pool of money.
The squad’s craving pizza on a Thursday night? This pizza party’s on you.
A small car repair? You’ve got it covered.
A blowout spring break trip that ensures you don’t miss out on one second of the college experience? Why not?!
Well, I’ll tell you why not: Overborrowing on student loans is a common source of regret among college graduates.
In a recent study, NerdWallet surveyed 522 undergraduate degree holders, and 48% said they could’ve borrowed less and still afforded their education.
On average, those who said they could have taken out less admitted to overborrowing by $11,597 over the course of their studies. For women, the average was slightly higher at $13,455, while men said they took out an average of $9,915 more than they needed.
If you overborrowed by the average amount of $11,597, you could end up paying upward of $14,000 once you factor in interest over the course of your loan’s 10-year lifespan. That breaks down to an additional $119 per month, according to NerdWallet’s analysis of a typical monthly payment on federal student loans.
Why So Much?
Part of the issue is just how little students know about their loans when they’re taking them out -- until the end of college.
If borrowers fully understood the gravity of the loan repayment process, they’d probably think twice about using their loans for random expenses and fun money.
And that’s the real problem. A recent Student Loan Hero survey found that 15% of students used student loan money on clothing; 13% used it on restaurant outings; and 3% used their loans to fund vacations.
But all that extra spending comes at a huge cost down the line once interest kicks in.
If you compromise on a cheap spring break destination that won’t break the bank and resist the urge to shop ’til you drop, you stand to save big bucks in the long run.
So How Much Should You Borrow?
There’s really no perfect answer, but it’s always better to keep your loan amounts as low as possible.
Find ways to keep your educational expenses low, like shopping around for the best price on textbooks.
Also, make sure to apply for scholarships -- and lots of them. You miss 100% of the shots you don’t take, and you definitely won’t receive scholarships if you don’t apply.
And if you’re done with school and struggling to understand your student loans, take a look at this in-depth guide to loan repayment.
Your Turn: Did you take out more loans for school than you really needed?
Grace Schweizer is a junior writer at The Penny Hoarder. She was lucky enough to go to school in everyone else’s spring break destination.