3 Sneaky Things Sabotaging Your Student Loan Repayment

There's no shortage of advice on the tactical how-tos around student loans: how to find a repayment plan, how to pay down debt faster, how to take on less debt in school… the list goes on and on.

And this information is helpful. Student loan repayment is tricky. You need to know the ins and outs of how these loans work along with what you can and can't do to get rid of them if you want to reach debt freedom as quickly as possible.

But all this knowledge doesn't do you much good if you subconsciously sabotage yourself. You may think you'd never do such a thing, but it happens more often than you might think.

A number of cognitive biases and ways of "magical thinking" can cause your behavior to get in the way of what you know is the right thing to do with our finances and decisions around student loans.

1. You’re Overly Optimistic or Overconfident (or Both)

Don't get me wrong: Positive thinking is a powerful thing. So is believing in yourself and your abilities. But you still need to remain grounded in reality. Being overly optimistic (or overconfident) is a form of magical thinking that can get you in big trouble with your student loans.

This happens when you think everything will work out just fine, no matter what, and you refuse to look at the facts. It just has to work out because you believe it will! So you stop taking action on your financial situation and ignore it altogether.

All the positive thinking in the world about the outcome won't prevent it from being a bad one in this case. Pair optimism with an action plan that details the exact steps you need to take to reach your goals. Of course you can succeed -- as long as you stay in action and work hard to pay off your debt.

2. You’ll Figure It Out… Eventually

Another form of overly optimistic thinking is when you tell yourself, sure, you'll make a plan and get in action… later. Maybe you're convinced you'll make more or have more money in the future somehow.

So you're not worried about dealing with your student loan debt today. You'll get to it when it makes more sense, when your salary grows. Or when a wealthy relative dies and you inherit their assets. Or when your business idea takes off and you can sell it for a million bucks.

But these thoughts are not sound financial plans. They're dreams, hopes, and wishes.

Don't expect "future you" to take care of your present financial woes. Maybe this will work out. And maybe it won't. (Honestly, the latter is far more likely.)

Either way, ignoring your student loans today creates a much bigger mess that's more difficult to clean up down the road no matter how much more money you make or have.

3. You Believe in the Sunk Cost Fallacy

This is a cognitive bias that makes you think something along the lines of, "well, I've already dug myself this deep in a financial hole. Might as well keep going."

You may think you would never say this -- and it does sound pretty silly when you frame it like that. But consider these examples instead:

  • I have $20,000 in student loan debt. What does it matter if I rack up $1,000 in credit card debt to pay for a vacation I deserve?

  • I graduated with $15,000 in student loans, so I might as well take out a little more to go to grad school.

  • I already missed a few student loan payments. There's no harm in missing a few more.

These are all examples of the sunk cost fallacy at works. We've already invested in something or made a decision to act in a certain way -- and we hate having to change our minds or reverse course.

But it makes more financial sense to stop investing time, money, or effort in bad decisions. It hurts because we've already on that to some extent. It's going to hurt worse, however, if we keep on digging out financial hole even deeper.

So what are you supposed to do?

Don't Let Mistakes in Thinking Sabotage Your Student Loan Repayment

There are several kinds of magical thinking or cognitive biases we can fall victim to, especially when it comes to money. We want to hope everything works out; that it will all be okay.

And it will be, but we need to think and act logically in order to achieve our financial goals. Instead of assuming everything will work itself out or your future self will take care of today's money problems, try turning this thinking on its head.

One strategy to avoid magical thinking is just to imagine the opposite. What if you were worse off in the future, rather than in a better financial position? What if things didn't work out without you getting proactive and taking action?

Clearly, your loans would go unpaid and your debt would increase over time. It's better to make a plan and act today rather than let your mind play tricks on you -- and your money.