BLOG  •

Mistakes to Avoid When Paying for College

Kat Tretina
Mistakes to Avoid When Paying for College
Mistakes to Avoid When Paying for College

College is more expensive than ever, and the increases in prices show no sign of slowing down. The National Center for Education Statistics (NCES) reported that the average cost of a four-year public university was $9,400 for the 2020-2021 academic year, a 10% increase from 2010-2011. At private schools, the average cost was $37,600, 19% higher than it was a decade ago.

Even if you have tuition covered, you may be surprised by added costs like room and board, textbooks, transportation, supplies, and other general living expenses. Emergencies — like a flat tire or a vet bill — can cause you to run out of cash quickly, leaving you scrambling to cover your remaining education costs.

When it comes to paying for college, there are several ways to finance your education. However, some methods are expensive and incredibly risky.

5 Financing Mistakes to Avoid When Paying for College

To pay for college, you can tap into savings, apply for gift aid in the form of scholarships or grants, or borrow money. Some students opt for other ways to pay for school, such as credit cards or payday loans, but those methods can be risky and cause you to rack up debt. Here’s what mistakes to avoid — and what you can do instead to get the cash you need.

1. Not Filling Out the FAFSA

The Free Application for Federal Student Aid (FAFSA) is a critical first step in securing financial aid. However, many students skip it because they think it’s too complicated or because they think they won’t qualify for aid.

The FAFSA has no income limit, and you can complete it in under an hour. By filling out the FAFSA, you can qualify for grants, work-study programs, and student loans. Schools also use it to determine your eligibility for institutional aid.

Plus, the FAFSA and financial aid packages cover more than just tuition; they can cover the entire cost of attendance, which includes your room and board, transportation, and even childcare. By completing the FAFSA, you may get enough financial aid that you don’t need to explore alternative financing options.

2. Using a Credit Card for School Tuition

Credit cards are an increasingly common way students pay for college. According to the Trellis Company’s Financial Wellness Survey, 28% of students at four-year schools said they used credit cards to cover some of their education costs.

The majority of colleges do accept credit card payments. While a credit card may be convenient, there are some significant downsides to using a credit card for school tuition:

     Processing fee: Although some students use credit cards because they want to earn rewards, the processing fee for using credit can negate the value of any cash back or miles you may get. The most common fee is 2.75% of the amount charged to the card. If you charged $5,000 of tuition costs and your school charged a 2.75% processing fee, it would add $137.50 to your overall cost.

     High APR: Credit cards have much higher annual percentage rates (APRs) than student loans. Credit card APRs can be well into the double-digits and, if you carry a balance, you can end up paying significantly more than you initially charged.

     No tax benefit: Unlike student loans, credit cards aren’t eligible for tax benefits like the student loan interest tax deduction.

     Not eligible for refinancing: With student loans, you can refinance to take advantage of lower interest rates. But with credit card debt, student loan refinancing isn’t an option.  

The 4 Best Companies for Private Student Loans

Our Top-Rated Picks for 2023 Offer Low Rates and No Fees

earnest-logo

Option to skip a payment once a year

Fixed Rate

4.79% – 13.85% APR 1

Variable Rate

4.79% – 13.50% APR 1
efli-lender

In-school deferment available if you return for another degree

Fixed Rate

3.98% – 11.99% APR 4

Variable Rate

3.98% – 11.99% APR 4

Optional $25 payment plan during school to reduce interest after graduation

Fixed Rate

4.49% – 15.82% APR 2

Variable Rate

4.49% – 15.72% 2

1% Cash Back Graduation Reward program

Fixed Rate

4.62% – 16.16% APR​ 3

Variable Rate

5.74% – 15.76% APR 3

3. Relying on Payday Loans

If you’re in a bind and need cash quickly, a payday loan can be appealing. Payday loans are for relatively small amounts — typically $500 or less — and you can get the money on the spot. However, they have incredibly high fees. According to the Consumer Financial Protection Bureau, the fees on a typical payday loan are the equivalent of 400% APR.

Plus, payday loans have to be repaid within a few weeks. If you’re unable to do so, the lender will often allow you to roll the loan into another one, causing your balances to balloon and interest to accrue at an alarming rate.

4. Taking Out an Auto Title Loan

Auto title loans are similar to payday loans in that they charge predatory fees. With an auto title loan, you apply for a relatively small amount of cash and repay it within a few weeks. Your car’s title serves as collateral, so if you fall behind, the lender can seize your vehicle.

The fees on a typical car title loan are the equivalent of about 300% APR, so they should be avoided.

5. Using a Personal Loan to Pay for College

Personal loans usually have lower interest rates than payday loans, auto title loans, or credit cards. But since college students don’t have lengthy credit histories and usually don’t have full-time jobs, they can be difficult to qualify for. Personal loans for students with less-than-perfect credit can have rates as high as 36%, so interest can accrue rapidly.

Personal loans have much shorter repayment terms than student loans; they usually have to be repaid within three to five years. And they aren’t eligible for student loan benefits like deferments or financial hardship forbearance, and you can’t take advantage of the student loan interest tax deduction.

Most personal loan lenders prohibit the use of personal loans for postsecondary education expenses, so you may struggle to find a lender willing to work with you in the first place. 

Free 13-page eBook: How to Pay For College

Download instantly with just one click

Free eBook: How to Pay for College

Download instantly with
just one click

Better Ways to Pay for College

Now that you know some of the common mistakes students make when paying for college, you can look for alternative solutions. Before turning to credit cards or personal loans, be sure to exhaust these options:

Grants

Grants are issued to students with financial need. They’re a form of gift aid, which means you don’t have to repay them. Grants can come from the federal government, state government agencies, and non-profit organizations.

One of the most common types of grants is the federal Pell Grant, which is awarded to undergraduate students with significant financial needs. To qualify for grants, you need to fill out the FAFSA.

You can search for available grants at CareerOneStop.

Scholarships

Like grants, scholarships are a form of gift aid; as long as you meet the award’s criteria, you don’t have to repay the money you receive.

Scholarships are usually based on your merit, such as your academic or athletic performance. Scholarships are awarded by schools, non-profit organizations, and companies. You can apply for and receive many scholarships, and you can combine awards to cover some or all of your educational expenses.

You can search for scholarships with Purefy’s scholarship search tool.

Work-Study Programs

Work-study programs are available from the federal government and states. With work-study, you work part-time at a job related to your major and use your earnings to offset some of your education costs.

To qualify for a work-study program, you must complete the FAFSA and demonstrate financial need. Contact your school financial aid office to see if your college participates in work-study programs.

Side Gigs

If your school doesn’t have a work-study program, another option is to pick up a side gig or part-time job and use your earnings to cover some of your expenses. You can find side gigs and part-time jobs suitable for college students at SnagAJob and CoolWorks.

Emergency Student Aid

As a college student, unexpected emergencies like a death of a family member or a car repair can derail your education plans. However, many schools and non-profit organizations have emergency student aid funds to help you pay for those expenses and complete your degree. For example

     The United Negro College Fund (UNCF) offers multiple emergency programs that cover everything from medical bills to natural disaster recovery. The average award is $2,000.

     At Miami-Dade College, student emergency aid is available to students that have a sudden emergency that would keep them from completing their courses. Students can receive up to $500 per semester and up to $1,000 per academic year.

     The University of Texas at Austin operates a student emergency fund. Eligible emergencies include medical treatments, medications for prescriptions, food insecurity, and natural disasters.

Contact your school’s financial aid or student services departments to find out if there are emergency funds at your school. You can also search for local resources with 211.org.

Federal Student Loans

If you need to borrow money, federal student loans are a good place to start. You can use federal student loans to cover most education-related expenses, including room and board and textbooks.

To qualify for federal loans, complete the FAFSA and talk to your school’s financial aid office to see what loans are available to you.

Private Student Loans

If you’ve used up other sources of aid and still need help covering the total cost of attendance, private student loans can play an important role in financing your education. Offered by banks and credit unions, private student loans allow you to borrow up to 100% of the school-certified cost of attendance.

You generally need good to excellent credit and a steady source of income to qualify for a private student loan. If you don’t meet that criteria, you may qualify for a loan if you add a cosigner to your application.

Rates and terms vary by lender, so shop around to find the best rates.

Paying for College

As a college student, facing unexpected expenses can be frustrating and stress-inducing. But before turning to a payday loan, auto title loan, or credit card for school tuition, make sure you explore all of your other options. With grants, scholarships, work-study programs, and student loans, you can get the cash you need to pay for school without having to pay predatory interest rates.

If you decide to take out a private student loan, you can use our rate comparison tool to shop multiple lenders with no impact on your credit score.

Need a Private Student Loan? Check Out the Top Lenders of 2023.

Compare interest rates and perks to find the best lender for you.

You Might Also Like
purefy recommends
efli-lender

Student Loan Refinancing

Refinancing from 3.99% APR

Check your rate in 2 minutes

with no impact on your credit score.

Earnest Rate Disclosure

Rates displayed include the 0.25% Auto Pay discount. You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.04% APR to 14.10% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.04% APR to 13.75% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school.

Earnest clients may skip one payment every 12 months. Your first request to skip a payment can be made once you’ve made at least 6 months of consecutive on-time payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Please be aware that a skipped payment does count toward the forbearance limits. Please note that skipping a payment is not guaranteed and is at Earnest’s discretion. Your monthly payment and total loan cost may increase as a result of postponing your payment and extending your term.

Loan Eligibility criteria: Eligible students must: 1) For college Freshmen, Sophomores and Juniors, attend, or be enrolled to attend, a Title IV school full-time. For college Seniors and Graduate students, attend, or be enrolled to attend, a Title IV school at least half-time; and 2) be pursuing a Bachelor’s or Graduate degree. Earnest private student loans are subject to credit qualification, completion of a loan application, verification of application information, self-certification of loan amount, and school certification.

Responsible borrowing tip: Explore all scholarship, grant and federal options before applying for a private loan.

Earnest Private Student Loans are made by One American Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104.

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

ELFI Rate Disclosure

Education Loan Finance is a nationwide student loan provider offered by Tennessee based SouthEast Bank. ELFI is designed to assist students financially with receiving their education. Subject to credit approval. See Terms & Conditions. Interest rates current as of 10-24-2022. Variable interest rates may increase after closing but will never exceed 18.00%. Interest rates may also differ from the rates shown above. The term of your loan, financial history, and other factors, including your cosigner’s (if any) financial history can affect the interest rate. For example, a 10-year loan with a fixed rate of 7% would have 120 payments of $11.61 per $1,000 borrowed. Rates are subject to change.

College Ave Rate Disclosure

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
Minimum loan amount $1,000, as certified by your school and less any other financial aid you might receive.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 02/01/2023. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

Ascent Rate Disclosure

Ascent Student Loans are funded by Bank of Lake Mills, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentStudentLoans.com/Ts&Cs.

Rates are effective as of 02/01/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized back account each month. For Ascent rates and repayment examples please visit: www.AscentStudentLoans.com/Rates.

1% Cash Back Graduation Reward subject to terms and conditions. Click here for details.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 5.09% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 6.94% to 11.58% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:


Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.64% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.64% APR to 9.19% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

Earnest Rate Disclosure

Rates displayed include the 0.25% Auto Pay discount. You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.04% APR to 14.10% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.04% APR to 13.75% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school.

Earnest clients may skip one payment every 12 months. Your first request to skip a payment can be made once you’ve made at least 6 months of consecutive on-time payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Please be aware that a skipped payment does count toward the forbearance limits. Please note that skipping a payment is not guaranteed and is at Earnest’s discretion. Your monthly payment and total loan cost may increase as a result of postponing your payment and extending your term.

Loan Eligibility criteria: Eligible students must: 1) For college Freshmen, Sophomores and Juniors, attend, or be enrolled to attend, a Title IV school full-time. For college Seniors and Graduate students, attend, or be enrolled to attend, a Title IV school at least half-time; and 2) be pursuing a Bachelor’s or Graduate degree. Earnest private student loans are subject to credit qualification, completion of a loan application, verification of application information, self-certification of loan amount, and school certification.

Responsible borrowing tip: Explore all scholarship, grant and federal options before applying for a private loan.

Earnest Private Student Loans are made by One American Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104.

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 01/01/2023. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

ELFI Rate Disclosure

Education Loan Finance is a nationwide student loan provider offered by Tennessee based SouthEast Bank. ELFI is designed to assist students financially with receiving their education. Subject to credit approval. See Terms & Conditions. Interest rates current as of 10-24-2022. Variable interest rates may increase after closing but will never exceed 18.00%. Interest rates may also differ from the rates shown above. The term of your loan, financial history, and other factors, including your cosigner’s (if any) financial history can affect the interest rate. For example, a 10-year loan with a fixed rate of 7% would have 120 payments of $11.61 per $1,000 borrowed. Rates are subject to change.

College Ave Rate Disclosure

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
Minimum loan amount $1,000, as certified by your school and less any other financial aid you might receive.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 02/01/2023. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

Want To Find Out When Student Loan Refinance Rates Drop?

Join our email list to get instantly notified when rates change.

I am a(Required)