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Biggest Student Loan Mistakes

These days, most students graduate college in debt. According to a new report by The Project on Student Debt, a nonprofit organization, 69 percent of graduates—from both public and nonprofit universities—begin their post-college careers under the burden of student loans. In fact, average debt for graduates from college (excluding private for-profit universities, as too few report student debt) increased to $28,400 in 2013.

While the numbers are a bit frightening—USA Today recently reported that 17 percent of borrowers are behind in their payments or in default on the nation’s $1.2 trillion in college loans—there are smart steps your college age child can take to avoid the biggest student loan mistakes.

Mistake 1: Borrowing as much as you can.

Help your student consider how much he actually needs to borrow to cover tuition, fees, room, board and books. Then, advise him to borrow only that much. Many graduates fell into the debt trap by taking out the maximum amount they were offered in loans rather than the minimum possible to cover education-related expenses.

Mistake 2: Taking more than four years to graduate.

According to CNN Money, 59 percent of college students take six years to complete their degree. Only 39 percent graduate in four. However, the fewer years you spend at university, the less you have to pay—or borrow to pay—in tuition, fees, room and board. Make the most of each year by taking the maximum number of credits you can handle rather than planning an “easy” schedule.

Mistake 3: Borrowing more than your potential future earnings.

Some experts advise keeping student loan balances at or beneath what you expect to earn your first year working in your chosen career. Obviously, that number will be higher for an engineer than it will be for an art or history major. Your campus career advisor should be able to provide you with recent data on the average starting salary companies are paying for employees with your degree.

Mistake 4: Overlooking less expensive colleges.

Your grandfather went to Harvard. Your father went to Harvard. Now you have to go to Harvard, right? Not if you’re concerned about future student loan debt. Public universities within your current state of residence are likely to provide you with the best value for your education dollar. For example, as an in-state student, you’ll pay significantly less in tuition.

Mistake 5: Skipping student loan payments.

Your student graduated, had difficulty finding a job, and missed several student loan payments. Now she’s in default. Unfortunately, it’s next to impossible to discharge student loan debt—even in bankruptcy. Before a situation like this happens, make sure your student understands that missing payments or even just paying late can damage her credit and disqualify her from federal loan forgiveness programs.

College is an investment, that’s for certain. It’s rarely “free,” even if your student wins scholarships and qualifies for federal financial assistance. While it’s likely he or she will graduate with some debt, it doesn’t have to be an overwhelming burden. And if you’d like more advice on planning for college expenses, we’re here to help.