Congratulations, college grad. Your first challenge is finding a job, and perhaps a place to live. The second challenge is even more difficult: starting to repay your student loans.
The time to start thinking about loan repayment is the week after graduation. At the very least, you’ll know how to start the process when your first paycheck arrives. And if you didn’t find a job, you’ll know your options of deferring payments.
Step 1: Find your student loans.
You likely have both federal loans and private loans. And each may have a different servicing company. You can find a list of all your federal student loans at StudentAid.gov, using your Federal Student Aid (FSA) log-in credentials. At the bottom of the summary of your loans, you’ll see a box marked: “Servicer/Lender/Guaranty Agency/ED Servicer Information.” There you can find your loan servicing company. Contact each servicer immediately to inform them of your current address and email.
If you have private student loans, the easiest place to check is your own credit report. Get it free at www.AnnualCreditReport.com. The lenders are listed separately, and you’ll see the balance of your loan outstanding. (Your federal student loans will show up there, as well, since by law they must be reported to the three major credit bureaus.)
Federal PLUS loans and private loans do not show up in this database. Your parents will find them listed on their own credit report.
Step 2: Set up a repayment plan.
There are two basic repayment plans for federal student loans: the standard 10-year plan and a “stretch plan” that allows you to stretch out payments for as long as 25 years (if you have at least $30,000 in student loan debt).
The longer-term option carries lower monthly payments, but it will also result in a dramatic increase in the total amount you repay because of the interest charged. The smart move is to choose the repayment plan with the highest monthly payment you can afford. You can calculate those payment alternatives at Finaid.org.
Your best move is to sign up for an automatic monthly deduction transfer for your payments from your checking or money market deposit account. If you sign up for automatic payments, most lenders will give you a 0.25 percentage point reduction in the loan interest rate.
Step 3: What if I can’t afford anything?
You have several alternatives if you have a low-paying job or no job at all.
—Income-based repayments. There are several versions of the income-based repayment plan that are available to lower your payments on federal student loans. Most borrowers will have a monthly payment under income-based repayment that is less than 10 percent of gross income. If you have made payments under this plan for 25 years and have not fully repaid your loan, the balance will be canceled. To learn more go to www.IBRInfo.org.
—Deferral. Federal student loans can be deferred — temporarily postponing payments. During a deferment, interest does not accrue on most subsidized student loans. But, interest will accrue on unsubsidized loans, such as unsubsidized federal Direct and Stafford loans and PLUS loans.
—Forbearance. Forbearance is a sort of last resort if you do not have a job or are on medical or maternity leave. Instead of simply defaulting on your federal student loans (and starting a chain of consequences that destroys your credit), you can ask for forbearance. While in forbearance, your loans continue to accrue interest, which gets added to your loan balance. Private student loans also offer forbearance, but it’s usually limited to a year in total duration, unlike the three-year limit for federal student loans.
They’re your student loans, and they helped pay for your education. Now put your education to work, not only by getting a job but by repaying those loans. The sooner, the better. And that’s The Savage Truth.