Whether you’re a new college student or you’ve been attending school for a few years, you might have some questions about student loans. Some may be simple, while others may be more complicated and related to student loan repayment.
To help clarify things, we’ve pulled together a list of common student loan questions, several of which focus on repayment. Here’s what to know.
What is a student loan servicer?
Your student loan servicer is the company that collects your monthly payments. In addition to collecting payments, servicers typically handle customer service questions and other administrative tasks, and enforce lender regulations related to your loans.
It’s common to borrow a student loan from one lender and end up getting a different servicer. Your servicers can also change if your loan is transferred. Likewise, if you choose to consolidate or refinance with a company that gives you lower payments, better interest, or a different repayment term, you’ll probably end up with a different servicer.
When should you start making payments?
The best advice: start making loan payments as soon as you can. Federal student loans and many private student loans allow a period of non-payment while you are in school, and sometimes for as long as six months after graduation. After that, you’ll need to make full monthly principal and interest payments.
That said, if you can make student loan payments while in school, it will save you on interest and cut the time it takes you to pay off your student loans. Even if you can only commit to paying $25 each month, every little bit helps.
What’s a student loan grace period?
As mentioned, many federal and private student loans give you a grace period during which you aren’t required to make payments. The grace period is typically six months after you graduate, drop below half-time enrollment status, or leave school.
Grace periods will vary by lender and loan type. Know what your grace period is so you aren’t caught off guard with late payments. This grace period for federal Direct loans is six months. PLUS loans do not have a grace period. If you have private loans, contact your lender to discuss their grace period.
Can you make extra student loan payments?
Yes. There are no prepayment penalties for federal or private student loans. Prepayment penalties are fees charged for paying off your loans early. Other types of loans, such as mortgages, can have prepayment penalties. These penalties were created to limit early payment of a debt, but no need to worry about that with your student loans.
Instead, pay attention to how additional payments are applied to your loan. If you make payments online, loan servicers generally allow you either pay extra on the principal or apply any additional funds toward interest on the next payment. Basically, if you choose to pay more than the minimum, you may need to specify if it goes towards principal or interest.
Paying extra each month on your student loans has its benefits. When your principal balance decreases, it reduces the amount of interest you’ll pay in the long term. It will also help you pay off your student loans faster.
What if I can’t pay my student loans?
If you’re struggling to pay your federal student loans, don’t wait to take action. You can apply for an income-driven repayment (IDR) plan. Currently, two IDRs are available: Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR). These plans base your monthly student loan payments on a percentage of your discretionary income and extend your repayment term. PAYE plans have a 20-year term, and ICRs have a 25-year term.
You can also request forbearance or deferment on your federal student loans if you have a qualifying hardship. Both let you pause your payments temporarily. Interest accrues on all loans in forbearance and most loans in deferment, so keep this in mind before you apply. A temporary pause could provide relief, but you may end up with a much larger loan balance to repay once the pause is lifted.
If you have private student loans, your options may be more limited. Contact your lender immediately to ask if they’re willing to temporarily pause your payments or provide another form of relief until you’re in a better position financially.
Will missed student loan payments hurt my credit?
Yes, missing student loan payments can hurt your credit and put you at risk for extra fees. If you get behind on your federal loans for 90 days, your servicer may report the delinquency to the three major credit bureaus: Equifax, Experian, and TransUnion. And if your federal loan remains in delinquency for 270 days, it will be in default. A default remains on your credit reports for up to seven years. The rules about missed payments vary for private lenders.
If you get significantly behind, your student loans could be sent to collections and you may end up paying fees to a collections agency. For this reason, it’s best to try and avoid missing payments.
Can I refinance my student loans?
Yes, it’s possible to refinance private and federal student loans. But be aware that you will lose federal loan benefits if you refinance your federal loans with a private lender. If you have both federal and private loans, you could opt to only refinance your private loans. Refinancing can help you change your repayment term, secure a lower interest rate, or reduce your monthly payments.
It’s wise to compare lenders if you’re considering a student loan refinance. Learn more about student loan refinancing with ELFI and try our student loan calculator to estimate how much you can save.
