Top Mistakes to Avoid When Taking Out a Student Loan
Introduction: Student Loans—The Bridge or the Burden?
For many Americans, student loans are a necessary path toward higher education. In fact, more than 43 million borrowers in the U.S. carry student loan debt, and that number keeps growing. Whether you’re a high school senior planning for college or a parent trying to support your child’s dreams, student loans can be either a smart investment or a long-term financial burden.
The difference? How you handle them.
Too many students make critical mistakes when borrowing for college—mistakes that can cost them thousands of dollars and years of financial stress. The good news? These missteps are completely avoidable if you know what to watch out for.
In this article, we’ll break down the top mistakes to avoid when taking out a student loan in 2025. From choosing the wrong loan type to overborrowing, we’ll walk you through how to make smarter decisions and set yourself up for long-term success.
1. Not Understanding the Difference Between Federal and Private Loans
This is the #1 most common—and costly—mistake.
Many first-time borrowers don’t know that there are two main types of student loans:
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Federal Loans: Offered by the U.S. Department of Education. These typically have lower fixed interest rates and flexible repayment options.
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Private Loans: Offered by banks, credit unions, or online lenders. These usually require a credit check, may have variable interest rates, and lack the protections of federal loans.
Why it matters:
Federal loans come with benefits like:
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Income-driven repayment plans
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Loan forgiveness options (like Public Service Loan Forgiveness)
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Deferment and forbearance during financial hardship
Mistake to avoid:
Choosing private loans before exhausting all federal loan options.
Tip:
Always start with the Free Application for Federal Student Aid (FAFSA). It opens the door to federal loans, grants, and work-study opportunities.
2. Borrowing More Than You Actually Need
Yes, it’s easy to get approved for more money than you require—but that doesn’t mean you should take it.
Here’s what happens:
You borrow $30,000 when your actual need is $18,000. That “extra” money goes to non-essentials—like off-campus housing upgrades, eating out, or a new laptop you didn’t truly need. Now, with interest, that extra $12,000 balloons into $15,000–$18,000 over time.
Mistake to avoid:
Treating student loans like free money or a lifestyle upgrade.
Tip:
Make a realistic college budget. Only borrow to cover essential costs—tuition, fees, books, and modest living expenses.
3. Ignoring the Interest Rate and How It Works
Many students accept loans without even looking at the interest rate or understanding how it compounds. That’s like signing a contract without reading it.
Quick breakdown:
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Subsidized federal loans: Government pays the interest while you’re in school.
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Unsubsidized federal loans: Interest accrues while you’re studying.
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Private loans: Interest accrues immediately and may be variable.
Mistake to avoid:
Not realizing how much interest will pile up before you even graduate.
Tip:
If you take out an unsubsidized or private loan, consider making interest-only payments during school. Even $25/month can save you thousands later.
4. Skipping the Loan Terms and Repayment Details
Would you buy a car without knowing the monthly payment? Hopefully not. Yet many students accept loans without knowing:
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When repayment begins
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What their monthly payments will be
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How long they’ll be paying
Mistake to avoid:
Signing a loan agreement without understanding repayment expectations.
Tip:
Use a loan simulator (like the one at StudentAid.gov) to estimate monthly payments based on your intended borrowing.
5. Thinking You’ll Automatically Qualify for Forgiveness
Student loan forgiveness programs like PSLF (Public Service Loan Forgiveness) or IDR forgiveness are real—but they’re not guaranteed.
They come with strict requirements, like:
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Making 120 qualifying payments
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Working full-time in a qualifying government or nonprofit role
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Staying enrolled in a specific repayment plan
Mistake to avoid:
Borrowing with the assumption your debt will be “forgiven later.”
Tip:
If forgiveness is part of your plan, read the fine print and track every qualifying payment. Use tools like the PSLF Help Tool on StudentAid.gov.
6. Waiting Too Long to Fill Out the FAFSA
Delaying your FAFSA means missing out on:
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Pell Grants
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Work-study jobs
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State aid
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Institutional scholarships
Some funds are first-come, first-served—and they run out fast.
Mistake to avoid:
Missing the FAFSA priority deadline for your state or college.
Tip:
Fill out the FAFSA as soon as it opens (usually in October). It’s free and can unlock thousands in non-loan aid.
7. Relying on Loans Instead of Exploring Scholarships and Grants
Every dollar you borrow is a dollar you have to repay—with interest. Yet, millions of dollars in scholarships go unclaimed each year.
Mistake to avoid:
Skipping scholarship applications and going straight to loans.
Tip:
Treat scholarship hunting like a part-time job. Apply for local, national, school-based, and niche scholarships (for your major, background, hobbies, etc.).
Start with:
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Your high school counselor or college financial aid office
8. Not Keeping Track of Your Loans
It’s easy to lose track of multiple loans—especially over 4+ years of college.
Mistake to avoid:
Forgetting who your loan servicer is, or how much you owe.
Tip:
Create a simple spreadsheet with:
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Lender name
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Amount borrowed
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Interest rate
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Loan type
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Grace period
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Repayment start date
Or, log in to StudentAid.gov to view all your federal loans in one place.
9. Cosigning a Private Loan Without a Plan
Parents, this one’s for you.
Cosigning a student loan means you are equally responsible for repaying it. If your child misses a payment, your credit takes the hit. Some lenders also don’t offer cosigner release.
Mistake to avoid:
Cosigning without fully understanding the risk or discussing repayment expectations.
Tip:
Have an honest talk about repayment, what happens after graduation, and backup plans in case of job loss or delays.
10. Ignoring Financial Aid Counseling
Many schools require an entrance counseling session before your first loan is disbursed. But students often click through it without paying attention.
Mistake to avoid:
Treating loan counseling as a formality instead of an educational opportunity.
Tip:
Take it seriously. Learn how interest works, what your repayment options are, and what to expect after graduation. It’s 30 minutes that could save you years of debt regret.
Final Thoughts: Make Smart Money Moves from Day One
Taking out a student loan is one of the biggest financial decisions you’ll ever make. Do it right, and it can open the door to incredible opportunities. Do it wrong, and you might spend a decade trying to climb out of the hole.
The key is to borrow with your eyes wide open. Know the type of loan you’re getting, how much you need, how interest works, and what your repayment will look like.
If you’re a student, educate yourself early. If you’re a parent, guide your child with the financial wisdom they may not yet have. The future isn’t just about earning a degree—it’s about managing the debt that comes with it.
Smart Borrowing Checklist
✅ Understand the difference between federal and private loans
✅ Borrow only what you truly need
✅ Know your interest rate and how it accrues
✅ Read and understand your loan terms
✅ Apply for FAFSA early
✅ Apply for as many scholarships and grants as possible
✅ Keep track of every loan
✅ Plan for repayment now—not after graduation
✅ Avoid borrowing based on forgiveness hopes
✅ Take financial counseling seriously
