I run a business that helps people manage their student loans — here are the top 5 mistakes I see

Noah Berger/Reuters

One of the great tragedies of our generation is that millions of us pay thousands of dollars in unnecessary student loan payments.

I founded my company, Student Loan Planner, to help people save on their student loans through low cost, flat-fee consultations.

I fell into this work accidentally after I built a spreadsheet to help my girlfriend pay back her $124,000 of medical-school debt.

My average client over the past month had a student loan balance of $228,063, and I saved the average client a projected $76,656 over the course of their loan repayment period.

I can attribute most of these savings to helping them avoid these five common mistakes:

1. Failing to check whether private refinancing could cut their interest rate in half

There are two reasons not to look at refinancing options with a private lender. The first is if you work in the not-for-profit sector and are sure you want to work towards tax-free loan forgiveness in the PSLF program over 10 years. The other is if your debt is so high relative to your income that you could never afford the monthly payments without government income-based repayment options. "High debt" means people with a debt-to-income ratio higher than 2.

Otherwise, there is likely no reason to keep your debt with the federal government. We had loans at 6.8% interest rates, and we refinanced the entire $124,000 balance into a 2.22% five-year variable loan with SoFi. By drastically reducing our interest rate, we saved over $3,000 in interest in the first year.

What blows my mind is that there are still people in the private sector paying north of 6% interest on their student loans who will never qualify for loan forgiveness. Do not be one of them. This is the equivalent of throwing a significant percentage of your paycheck on a bonfire every month.

2. Staying with the same income-based repayment plan

Did you sign up for Income Based Repayment (IBR) or Pay As You Earn (PAYE) so you could file taxes separately and count only your own income toward monthly payment calculations? Do you use the Revised Pay As You Earn plan (REPAYE) because of the large interest subsidy that can sometimes hold down your effective interest rate to 3% to 4%?

For many of my clients, they made their payment plan selection based on one interaction they had with the financial aid office several years ago. Reevaluating what payment program is right for you can sometimes be worth tens of thousands of dollars.

3. Putting off consolidation of non-direct federal loans

The next few tips are mostly for workers in the not-for-profit sector. Consolidating your loans is very important if you plan to use the Public Service Loan Forgiveness Program (PSLF), which results in tax-free student loan forgiveness after 10 years of eligible payments. Many of my clients have loans made under the old FFEL program, rendering a large percent of their debt ineligible for this benefit.

To illustrate the problem, one doctor I worked with waited until her last year of residency to consolidate her debt into a single direct consolidation loan. By waiting, she cost herself four years of credit toward tax-free loan forgiveness. She could have saved tens of thousands of dollars by consolidating at the beginning of residency.

4. Neglecting to file the PSLF employment certification form annually

Many people currently enrolled in the PSLF program are in for a rude awakening thanks to their servicers' inaccurate record keeping. When my girlfriend submitted her application for PSLF, her loan servicer responded that she had made only two payments toward the 120 needed for forgiveness. She had actually made 36 payments. Imagine if we had waited until the end of the forgiveness period to discover this discrepancy. The loan servicer might have requested years of extra payments.

Anybody working for a not for profit must submit the PSLF employment certification form annually. By doing this, you create a paper trail with the government that will ensure you receive your tax-free forgiveness on time.

5. Entering into forbearance when times get tough

By putting off your payments with forbearance, you could be adding months or even years to the date of loan forgiveness. Income-based repayment programs allow for monthly payments as low as $0. No matter how low the dollar figure, this monthly amount would count towards loan forgiveness programs. Several clients incorrectly thought that forbearance was their only option during periods of economic hardship.

Even though you can delay the payments with forbearance, you cannot delay the interest. Your debt continues to grow. By putting off the problem, you will only make student loans harder to pay off later.

Dodge these 5 mistakes and destroy your student loan balance

Whether you avoid these mistakes yourself or hire someone like me to help, hopefully you feel empowered. Paying thousands of dollars in unnecessary student loan payments stinks.

Travis Hornsby founded Student Loan Planner in September 2016. He offers low-cost, flat-fee student loan consultations for individuals and couples at travis@studentloanplanner.com. He formerly traded bonds for the largest mutual fund manager in the world before he discovered the world of early retirement and walked away from traditional corporate life in June 2015. He blogs about millennial personal finance at Millennial Moola.

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