As a recent graduate, not only do you need to find a job and a place to live, but you also have to start repaying your student loans. This can be an exciting and stressful time, but by following the tips below, you can choose the best financial options for your needs. With an affordable monthly payment plan, you can gradually eliminate your debt while protecting your credit rating.
The advice below can help you to decide the best course of action for keeping your student loan debt manageable.
1. Don’t Ignore Your Student Loan Debt
There are consequences to not paying off your debts. If you don’t make on-time payments, you may eventually default on your student loans. Additionally, not making student loan payments will increase the amount that you owe due to penalties and interest. Your credit score can also be affected negatively.
If you have federal loans, you risk garnishment of your wages and seizure of any tax refunds you are due. Private lenders, such as banks, can even sue you in civil court. If you file for bankruptcy, your student loan debt is highly unlikely to be discharged. This means you will still owe the money. Ignoring your financial obligations can affect the rest of your life.
2. Know the Types of Student Loans You Have
There are many student loans available, but only two types: federal and private. The type of student loan you have will help determine your options for repaying your loans. In general, federal loans offer more repayment options than private lenders.
You can use the National Student Loan Data System (NSLDS) database to find out which types of loans you have. After graduation, you will also receive letters from your lenders. This is the best way to find out about your private student loans.
3. Learn About Loan Forgiveness Programs
Loan forgiveness programs offer the opportunity to have all or part of your federal student loan debt forgiven. Often, requirements include working in certain careers, such as medicine, teaching, and the military, or for certain organizations, such as nonprofits and government agencies. The Peace Corps and AmeriCorps also have loan forgiveness programs.
Another federal program to consider is the Public Service Loan Forgiveness (PSLF) program, which forgives any debt that you still owe after working 10 years in public service jobs and making 120 monthly payments.
Private lenders don’t usually offer student loan forgiveness.
4. Know How Much You Owe
You need to know how much money you owe to each lender. You can find your loan details by reading copies of the original paperwork or by contacting your lenders for the information. Once you know the amount of your student loan debt, you can look for a repayment strategy that works best for your situation.
5. Sign Up for Automatic Payments
Having student loan payments auto-debited each month is a convenient way to ensure you stay on top of your student loans. Another benefit for borrowers is that they may be eligible for an interest rate deduction for enrolling in auto pay.
6. Understand How Grace Periods Work
Most federal student loans have a grace period of six months. This means that you don’t have to start paying back the loan until six months after you graduate. However, some federal loans like the Perkins Loan have a nine-month grace period, while others, such as the PLUS Loan, have no grace period, so repayment begins immediately upon graduation.
With private lenders, the grace period varies widely. Contact your lender to find out when the first payment is due.
7. Extend Your Grace Period
If your grace period is almost over, and you still haven’t found a job, there are a few ways to extend your grace period. If you have federal student loans, your options include deferment or forbearance. These options are also available if you lose your job, or you can’t continue to make payments due to health problems or financial hardship.
Deferments are available through the federal repayment program. With a deferment, you can postpone monthly payments for up to three years without defaulting on your loan or damaging your credit rating. Forbearance provides temporary postponement of monthly payments for 12 months or less, also without financial consequences. These programs have eligibility criteria.
Keep in mind that interest on your loans continues to accrue as you postpone payments.
Some private lenders offer deferment or forbearance programs but often only in severe circumstances, such as a health crisis. Contact your private lender for specific information.
8. Choose the Best Repayment Plan for Your Situation
The type of loan you have determines the repayment options that are available to you. For example, for recent graduates with federal student loans, the standard repayment plan is set for 10 years. However, you can choose another repayment option at any time. Adding more years to your loan can lower your monthly payments, but remember that prolonging repayment adds interest and increases the overall loan amount.
For federal student loans, you have the option to apply for an income-driven repayment (IDR) plan. Each plan, such as the Income-Based Repayment Plan (IBR), sets a cap on monthly payments, which are based on a percentage of the borrower’s annual earnings. If your income is very low, your required monthly payment could be zero.
Each IDR has its own repayment terms. Some extend the life of the loan to 20 or 25 years. They also set your monthly payments to 10%, 15%, or 20% of your discretionary income. With some IDR plans, you also need to prove financial need.
Private loans are not eligible for IDR plans. However, some private lenders may offer interest-only payment plans for a short period. You will need to discuss this with your lender to see if you qualify.
9. Pay Off Loans as Quickly as Possible
Not every recent graduate can afford to do this, but if you can prepay your loans, it can save you thousands of dollars. If you want to pay off loans ahead of schedule, it’s best to pay off the most expensive student loans first. These are the loans with the highest interest rates.
By paying a little extra money every month, you can lower your interest payments on your loans. Be certain to tell your lender in writing that you want the extra money applied to your loan balance and not credited to next month’s payment.
10. Consider Consolidating Your Student Loans
One way to simplify loan payments is with debt consolidation. A consolidated loan combines all your loans into one monthly payment at a fixed interest rate. You can apply to consolidate your federal student loans through the government. If you decide to refinance your private student loans, do a lot of research to find a program that has a fixed or low-interest rate.
It may not be a good idea, however, to refinance your federal loans with your private loans because you will lose access to all federal student loan repayment programs, including loan forgiveness. Private loans don’t offer the same benefits or flexibility that federal student loans offer.
11. Think About Refinancing Your Loans
Another option for recent graduates is to refinance student loans. Finding a lender with favorable refinancing terms takes time but can be worth the effort. With refinancing, you can combine all your loans into one monthly payment. You can save a lot of money with a lower interest rate than your current loans and with shorter repayment periods.
12. Remain in Contact With Your Lenders
Let your lenders know of any changes to your home address, email address, phone number, and job. Lenders need to be able to contact you, so there are no delays in receiving important information about your loans.
Stay Informed About Student Loan Debt
As a recent graduate, you now have to get a job, find a place to live, and start repaying your loans. Fortunately, there are many options available to help make repaying student loans less overwhelming. You can easily manage years of student loan payments with accurate information and good decisions.
At College Finance, we offer you the best information and resources to successfully navigate the repayment of your student loans, both federal and private. We can help make paying for college a little bit easier.
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