9 common mistakes when borrowing undergraduate student loans

By Kassondra Cloos | Published on October 21, 2025

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The process of getting student loans¹ for undergraduate study can be complicated. And when taking on debt is involved, the stakes are high. Just a few small errors could end up costing you thousands of dollars in the long run. If you’re applying for undergraduate student loans, here are nine common mistakes to avoid.

Not filling out your FAFSA ASAP

Filling out your FAFSA is the first step to determining how much the federal government can offer you in financial aid based on your family income, the school you’re going to, and other factors. Since financial aid is money you don’t have to pay back — like grants, scholarships, and work-study awards — this should be completed before you consider taking out any loans for college. Depending on your financial need and which school you choose to attend, you may be able to have nearly all of your college costs covered by grants you don’t have to pay back.

The FAFSA is also your first step to borrowing federal student loans. So once you know how much you’re eligible to receive in financial aid, your SAR (Student Aid Report) will also tell you how much you’re eligible to borrow in federal student loans.

Read More:How to qualify for student loans

For the 2025-26 academic year, the FAFSA opened on December 1, 2024, deviating from the traditional October 1 start date. The federal deadline remains June 30, but state and institutional deadlines may vary.

Regardless, it’s a good idea to get this form in as soon as possible, since some aid is offered on a first-come first-served basis. Contact your school’s financial aid office to find out about any opportunities for additional need-based aid you may not be aware of.

Borrowing private student loans first

As of the 2024-25 academic year, federal student loan interest rates have increased:

• Direct Subsidized and Unsubsidized Loans for undergraduates: 6.53%
• Direct Unsubsidized Loans for graduate students: 8.08%
• PLUS Loans for parents and graduate students: 9.08%

These rates are the highest in over a decade, but you should always max out federal loans available to you before you borrow private loans.

Read More:When to Take out Student Loans

This is because federal student loans from the U.S. Department of Education offer protections and flexible repayment options (like income-driven repayment*) for borrowers that private lenders may not offer. To name just a few of the perks of federal loans:

• You’ll be protected in the event your school closes down: If you’re not able to finish studying because your school closes down for some reason, you won’t be on the hook to pay back your student loans.
• Federal student loan borrowers have access to various repayment plans, including Income-Driven Repayment (IDR) plans like the Saving on a Valuable Education (SAVE)** plan, which can lower monthly payments based on income and family size.
• Usually, you don’t need to go through a credit check: Unlike loans from private lenders, the application process for federal loans usually doesn’t require a credit check or minimum credit score, as long as you’re a student applying for yourself. Essentially all undergraduate and graduate students who are U.S. citizens or permanent residents may be eligible for a federal loan. Parents and guardians applying for Direct PLUS loans for dependent undergraduate students, and graduate and professional students applying for PLUS loans, have to undergo a credit check to make sure there are no adverse marks on their credit history. Borrowers with adverse credit history will need to meet additional requirements to qualify.
• For Direct Subsidized Loans, interest does not accrue while you're enrolled at least half-time, during the grace period, and during deferment periods. However, for Direct Unsubsidized Loans, interest accrues immediately upon disbursement.
• You may be eligible for student loan forgiveness. There are several ways to qualify for student loan forgiveness, but only for student loan debt borrowed from the government. Under the Public Service Loan Forgiveness (PSLF) program, borrowers employed full-time by qualifying public service employers may have their remaining Direct Loan balance forgiven after making 120 qualifying monthly payments under a qualifying repayment plan. You may also be able to get the remainder of your loans canceled or forgiven if you’re still making payments on undergraduate education loans after 20 years of repayment.
• The Department of Education requires borrowers to complete entrance counseling before receiving a Direct Loan. This ensures you understand your responsibilities and obligations. Additionally, exit counseling is required before you graduate or drop below half-time enrollment. These online programs will make sure you fully understand the debt you’re taking on.

* As a result of ongoing court actions, the terms of some Income-Driven Repayment (IDR) plans, including the SAVE plan, may be subject to change. Please refer to studentaid.gov for the current status of these plans.

** A federal court has issued a stay preventing the U.S. Department of Education (ED) from operating the Saving on a Valuable Education (SAVE) Plan. Please refer to studentaid.gov for the current status.

Not calculating interest

Regardless of whether you’re a dependent undergraduate student seeking a student loan or a mid-career professional seeking a business student loan, you should always understand the total cost of your loan before you go through with a loan application.

Depending on your interest rate and repayment terms, a $10,000 loan could easily become $18,000 to $20,000 or more over time**.

It’s wise to spend some time calculating how you can reduce your overall loan cost.

For example, if you make extra payments during the school year, or whenever you have the cash to spare, you can reduce your interest payments over time. Even just $10 per month adds up to over $1,000 over the span of a standard 10-year repayment plan**.

Not paying attention to the loan type

It’s extremely important to understand what type of loan you’re borrowing. Loans with fixed interest rates do not change at all during the course of repayment, regardless of how the Federal Reserve may increase or decrease the prime rate.

All federal loans have fixed interest rates, which are not impacted by your credit score. However, they do carry origination fees:

• Direct Subsidized and Unsubsidized Loans: 1.057%
• Direct PLUS Loans: 4.228%

These fees are deducted from each loan disbursement.

Other types of loans with variable interest rates, however, may fluctuate significantly from the outset of your loan throughout the course of repayment.

Because of this, variable rates are usually lower at the outset of a loan than fixed rates, but choosing them is a bit of a gamble. If you refinance with Earnest, Earnest allows borrowers in good standing to apply to refinance their loans again through Earnest after 30 days after disbursement , so that you can switch from a variable rate to fixed or vice-versa if you’d like to.

This can be a great way to lower your loan interest rates if you’ve improved your credit history and increased your score from fair to good credit**. (Note that this will require a new loan application and a hard credit check, which could impact your credit score.)

Borrowing more than you need

You can borrow student loans to cover the full cost of college using either a mix of federal and private loans, or just one of the two. If you’re a dependent undergraduate student, you’ll be subject to aggregate loan limits for Direct Unsubsidized and Subsidized loans, but your parents may be able to borrow Parent Plus Loans on your behalf to fund the gap between what you’ve borrowed and what you need to pay.

That said, you should only borrow exactly as much as you need, and nothing more. If you have the option to work and save up a bit of money so you can put some cash toward your education, that will save you a lot of money over time. There are also lots of other ways to afford college without going into debt.

Read More:What Can Student Loans Be Used For?

Not shopping around

If you choose to borrow private student loans, you need to choose a lender you trust. After all, you’ll be with them for potentially up to 20 years of repayment. Shop around to compare rates and save money, and make sure to compare benefits, too. Earnest, for example, allows borrowers in good standing to request to skip a payment** once per year if times get tough. And Earnest’s Client Happiness Team will take calls from all current and prospective borrowers to help you understand your options and chat through what makes Earnest different.

Not finding a creditworthy cosigner

If you’re a current student or recent graduate, you may not have had time to build up a substantial credit history yet. So, your interest rates will be higher if you try to apply for a private student loan without a cosigner. A cosigner is someone with good credit who agrees to pay back your loan if you can’t. In general, the higher their credit score, the better rates you’ll get. And even a small improvement in interest rate can save over the life of the loan. Just beware that your cosigner’s credit score could be impacted if you can’t make payments on your loan, so you should be confident you’ll be able to pay back the debt before you ask someone to help you.

Not planning your repayment strategy

It’s extremely important to understand how you’re going to pay back your loans before you borrow them. If you don’t, you could end up in a bad situation where you have to seek deferment or forbearance to avoid defaulting on your loans. This will likely result in your loan accruing even more interest, and it could hurt your credit score, too.

Not using auto-pay

• Setting up auto-pay can save you from missing a payment—and get you a rate discount

If you have trouble keeping track of multiple payments and deadlines, setting up automatic payments can save you a lot of trouble. It can also save you money. Many lenders, including Earnest, will give you a small annual percentage rate “APR” discount (Earnest’s is .25% APR**) as a thank-you for signing up for auto-pay.

Making payments complicated by not consolidating your loans

If you have federal student loans from multiple loan servicers, consolidation can bring all of them together so you have just one simple monthly payment. Unlike refinancing, consolidation won’t lower your interest rate. Your rate may actually increase slightly, as it will be a weighted average of your existing rates on each loan. However, consolidation may make it easier for you to keep track of bills and balances, which may save you money if you’ve missed payments in the past.

Budgeting oversights

• Explore potential jobs and careers to make a budget

It’s worth exploring careers in your field of interest to find out how much they typically pay a recent undergrad. Your actual salary may vary significantly, but this could help you formulate a sample budget for your life after higher education. You could live at home with your parents for a year or two after college to save money, or you may want to focus on finding a career that’s eligible for Public Service Loan Forgiveness.

Don’t forget: Planning to refinance can be a great way to save money

While federal student loans have a lot of flexibility for borrowers, they also can have higher interest rates than private loans. You may be able to refinance your loans after graduation through a credit union or other private lender, such as Earnest, which can save you a significant amount of money if you can get lower interest rates. To work on improving your credit score so you can get a good rate, start making small payments on your loans while you’re still in school and/or apply for a credit card to build your credit history. Just make sure you pay off those cards in full each month so you don’t end up with additional debt.

Read our FAQs about refinancing.

Not making payments during school

Unless you have Direct Subsidized Loan from the federal government, your loan will continue to accrue interest while you’re in school. Depending on your private student loans lender, you may not be required to make any payments on your loan until after your grace period. But if you can manage to make interest-only payments, it’s wise to do so. That’s because of a concept known as “interest capitalization.

Interest capitalization refers to a point in the loan borrowing process when accrued interest is added to the principal. This increases your loan balance, and then all future interest payments are calculated based on that new, higher balance.

Make sure you understand how interest capitalizes post-graduation

Let’s say, for example, that you borrowed $10,000 in student loans for undergraduate study. If you make interest payments while you’re in school—just the interest, not including any extra money to go toward the principal balance—that loan will have a balance of $10,000 when you graduate***. Once you start making your regular monthly payments, your outstanding loan amount will decrease as you pay down the principal. Interest only accrues on your principal balance, so you will eventually start noticing that you pay less interest each month on your remaining balance as your principal decreases.

If you don’t make interest payments while in school, however, all that interest will become part of your principal balance.

Learn more about Earnest student loans

Are you trying to fill the gap between financial aid and college expenses? Earnest offers flexible loan terms, no prepayment or origination fees, and a 9-month grace period** compared to the typical 6-month grace period offered by other lenders. Find out what your student loan payments could look like with our free student loan calculator, and for the latest interest rates visit our private student loans page.

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About the Author

Kassondra Cloos

Kassondra Cloos is a writer, editor, and former Earnest client. She refinanced her own student loans with Earnest after graduating and has first-hand experience with the refinancing process. She has been writing about personal finance and student loans since 2017. She also writes about sustainable travel and adventure for The Guardian, Outside, Backpacker, and many other publications. You can find more of her work via her travel newsletter, Out of Office.