Avoid these student loan mistakes when living off campus

Living off campus can seem ideal for college students. You have more space, there’s no bothersome RA around and guests can come and go as they please. In many cases, it’s also more affordable. At Millersville University, for example, living on campus costs nearly $48,000 across four years of schooling. Paying for off-campus housing? That’d be less than $20,000.

But those savings shouldn’t mean letting your financial guard down when paying for college tuition and other associated fees. To truly maximize what off-campus living can do for your wallet, you need to be smart about how you manage your money — and more importantly, your student loans.

3 student loan mistakes to avoid

Want to make sure your life as you live off campus is as successful as it can be? Then avoid these all-too-common mistakes:

1. Not filling out your FAFSA
2. Relying on student loans for expenses
3. Borrowing the wrong amount in school loans

1. Not filling out your FAFSA

You should always fill out the Free Application for Federal Student Aid, or FAFSA, prior to each school year.

The FAFSA allows you to apply for federal and state grants — essentially free money for your education — as well as federal student loans, which tend to have better interest rates and more favorable terms than private ones.

"Always borrow federal first, because federal student loans charge lower fixed interest rates that do not depend on your credit scores," said Mark Kantrowitz, student loan expert and author of "How to Appeal for More College Financial Aid." "Federal student loans also offer better repayment terms."

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2. Relying on student loans for expenses

When you live on campus, much of your costs are controlled. Your food costs are lumped in with your housing costs and you don’t have to worry about over-spending on restaurants, electricity, water or other general living expenses.

But when you're paying for housing off campus, things change. You’re responsible for food and utility costs, and it’s generally just easier to spend on non-essentials. Though student loan funds can certainly help offset your additional costs of living, it’s important not to live beyond your means (as it could mean borrowing additional student loans and racking up more debt).

"Create a budget and stick to it to avoid living beyond your means and making nonessential purchases," said Leslie Tayne, debt relief attorney at Tayne Law Group. "The more money borrowed, the longer and more challenging it can be to repay student loans."

If you do find your costs getting out of hand, consider getting a part-time job, picking up a side gig or even doing some tutoring to earn extra cash. On-campus jobs can also be a great way to earn money and gain some experience.

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3. Borrowing the wrong amount in loans

Student loans are necessary for a large swath of American students. In fact, about 70% of the class of 2019 took out student loans at some point in their educations.

The CARES Act, though, continues to give borrowers of federal loans some relief for their loan repayment with an opportunity to pause payments free of interest. As an arm of relief due to the coronavirus pandemic, President Joe Biden extended the legislation through September 2021, which could help millions of American eventually pay off debt.

Student loan forgiveness continues to serve as a contentious topic on both sides of the aisle, as the Biden administration weighs the ability to pay off current student loans and ease the burden on the college cost for students.

But while taking out student loans is common when it comes to the cost of college, it’s also something you should approach with caution. Before borrowing money, use a student loan calculator to carefully calculate how much you need for your loan repayment. You can also crunch the numbers using Credible's free online tools.

"Student loan debt might be considered good debt because it is an investment in your future, but too much of a good thing can hurt you," Kantrowitz says.

Ideally, you should borrow no more loan money for your entire education than you expect for your annual starting salary, says Kantrowitz.

"If your total student loan debt is less than your annual income, you should be able to repay your student loans in 10 years or less," he says. "Otherwise, you'll struggle to make your loan payments, and you'll need extended repayment or income-driven repayment to afford the monthly loan payments."

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The bottom line

If you’re using student loans to pay for your tuition and fees and cost of attendance, make sure to exhaust your federal options first. Then, move onto private loans and use an online student loan calculator to gauge the costs and ensure you’re only borrowing what you need.

Finally, be sure to shop around for your lender. Student loan rates and terms can vary widely, just like rates for a personal loan or auto loan, so use a tool like Credible to get personalized rates from multiple lenders without affecting your credit score.

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