Once you leave college–whether through graduation or by dropping below half-time enrollment–it’s time to start thinking about student loan repayment.
Understanding the repayment process for your student loans is crucial for several reasons. For one, if you don’t pay, your interest will accrue. Nonpayment can also harm your credit score, hindering your ability to buy a home or car, qualify for credit cards, take out a personal loan, or refinance your student loans.
Follow these tips to master student loan repayment and get yourself to a strong financial start after college.
1. Know How to Access Your Loan Information
A good first step is to acquire your loan information, which you can typically access online. If you took out federal student loans, you can access your info through the Federal Student Aid website. If you took out private student loans, check with your lender on how to access your information.
By understanding the status of your loans, interest rates, and balance, you can make more informed decisions about how you want to prioritize repayment, what type of repayment plan you want to choose, or if you want to consolidate or refinance your student loans.
2. Note When Your Payments Start
Immediately following graduation, you’ll likely have a grace period, or a period of time before your first payment is due. This can vary depending on what type of student loans you have.
Subsidized and Unsubsidized Federal loans, for example, have a six-month grace period. Private student loans have differing grace periods so contact your loan servicer for more details. Knowing when your first payments start is imperative to avoid costly student loan repayment mistakes.
3. Weigh Your Repayment Options
Your student loan repayment options will differ based on whether you have private or federal student loans. Here’s what to expect with each.
Private Student Loan Repayment
Generally, private student loans have fewer repayment options than federal student loans. Available options can also vary by lender. For instance, ELFI offers four repayment options for undergraduate loans:
- Immediate – Monthly principal and interest payments that begin while you’re in school, shortly after your loan is funded.
- Fixed – Monthly $25 payments while in school and during your six-month grace period after graduation. Regular principal and interest payments afterward.
- Interest-only – Monthly interest-only payments while in school and during your six-month grace period after graduation. Regular principal and interest payments afterward.
- Deferred – No monthly payments required while in school and during your six-month grace period after graduation. Regular principal and interest payments afterward.
Learn more about ELFI’s undergraduate student loans and available repayment options.
Federal Student Loan Repayment
When you take out federal student loans and your grace period is complete, you will automatically enter the Standard Repayment Plan. This plan allows you to pay off your debt within 10 years, with your monthly payment remaining the same over your loan’s term. If standard repayment doesn’t work for your budget, you may want to consider some other options or perhaps even refinance your student loans.
The federal student loan program offers the following income-based repayment plans. (Note that this information could change based on a recent ruling):
- Graduated Repayment Plan – Gives you a smaller payment amount in the beginning and gradually increases the payment amount every two years.
- Extended Repayment Plan – Allows you to pay the least possible amount per month for 10 to 25 years.
- Pay As You Earn (PAYE) – Monthly payments are typically 10% of your monthly discretionary income. Partial financial hardship is required.
- Saving on a Valuable Education (SAVE) – Monthly payments are between 5% and 10% of your monthly discretionary income.
- Income-Based Repayment (IBR) – Monthly payments are typically 10% of your monthly discretionary income (if borrowed after July 1, 2014) or 15% (if borrowed before July 1, 2014). Partial financial hardship is required.
- Income-Contingent Repayment (ICR) – Monthly payments are typically 20% of your monthly discretionary income.
Keep in mind that each repayment option has advantages, disadvantages, and eligibility requirements. Research each option before making a decision, and contact your loan servicer if you have questions or need more information.
4. Automate Your Payments (If You Can)
Setting up automatic payments will make the payment process simpler, help you avoid late payments, and may even score you an interest rate reduction. Just ensure you have enough money in your account each month to make the payments without overdrawing.
5. Make Extra Payments
Your monthly payments will first apply to any late fees you owe, then interest. After those are covered, the remaining payment will go toward your principal loan balance (the amount you borrowed). By paying down the principal on student loans, you reduce the interest you pay over the life of the loan.
If you plan to make extra payments, it can be helpful to set repayment goals to keep yourself motivated. Cutting costs where you can by cooking more meals at home or spending less money on clothing and entertainment might make it easier to afford paying extra.
6. Reach Out for Help if Necessary
If you’re struggling with your monthly payments, particularly on your federal student loans, contact your loan servicer. They will work with you to find a manageable repayment plan or help determine your eligibility for deferment or forbearance. If you stop making payments without getting a deferment or forbearance, you risk defaulting on your loan, which can harm your credit.
7. Weigh Refinancing & Consolidation Options
If you have multiple student loans accruing interest at different rates, consider student loan refinancing or consolidation to make repayment more manageable. The federal student loan program offers student loan consolidation, in which they combine your loans into one with a weighted average interest rate rounded up to the nearest 1/8th percent.
You can also consolidate your federal and/or private student loan with a private lender by refinancing. Refinancing your student loans is much like consolidation, but it offers the opportunity to start new repayment terms and possibly lower your interest rate. Keep in mind that refinancing with a private lender may cause you to lose access to certain federal student loan repayment options listed above.
If you decide student loan refinancing is the right option, try our Student Loan Refinance Calculator to see how much you could save by refinancing with ELFI.
8. Look Into Loan Forgiveness
If you have federal student loans and work in a qualifying role, consider the Public Service Loan Forgiveness program or another loan forgiveness program offered by the federal government. Other options exist for volunteers, military recruits, medical personnel, etc. Some state, school, and private programs also offer loan forgiveness. Check with your school or loan servicer to see if you could qualify for student loan forgiveness.
9. Earn Your Tax Benefits
The interest you pay on your student loans may be tax deductible. Deductions reduce your tax liability, saving you money and serving as a nice tradeoff for having to pay interest on your student loans.
The Bottom Line
Student loan repayment can be a long journey – but taking advantage of your resources and staying determined to pay off your debt can help. If you need more information on paying back your student loans or the options available to you, contact your loan servicer.
