Student Loan Repayment: Six essential tips for graduates.

Right now, there are two types of former college students who will soon be (if not already) repaying their student loans. The first are recent graduates (congratulations!), who, after graduating last spring are nearing the end of their six-month grace period on repaying federal student loans. The second are the millions of people who had to resume making student loan payments in October after the Trump administration paused them during the Covid-19 pandemic (the Biden administration sought to have much of this debt held by 40 million Americans cancelled, but the Supreme Court struck down the effort).

Whether you’re a recent grad or recently resumed making payments, tackling student loan debt can be challenging and stressful.  The Education Data Initiative reports the average federal loan debt balance per student is $37,718, and when private loans are included, the average may be as high as $40,499. In the grand scheme of government finances that may not seem like a lot of money, but the big picture looks much different: the total amount Americans collectively owe on their student loans is a whopping $1.77 trillion. That’s equivalent to the federal government’s entire 2022 budget.

The political debate about whether this money is better spent in the overall U.S. economy or returned with interest to the U.S. government will likely continue, but in the meantime the time has arrived to make those payments. Failure to do so will negatively impact your credit score, which will have long term consequences on your ability to obtain favorable loan rates (or loans period, for that matter), rent an apartment, pay down debt faster, and even your ability to find work in certain fields. It may be tempting to think student debt can be dealt with down the road, or that the government will step in and fix everything, but the reality is you need to start paying off your student debt. Right now.

1. Know these 3 things that will help you make — and keep — a budget, make timely payments (which improves your credit score), and help you decide if it makes sense to refinance or consolidate your debt:

• Your loan servicer (who receives your payments)
• How much you owe (the total amount and the monthly payment amount)
• Your interest rate(s). The interest rate for all federal student loans is fixed, but it changes every year.

For federal student loans, this information is available at National Student Loan Data System (NSLDS)

2. Know your repayment options:

• Standard Repayment – Payments are a fixed amount that ensures your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).
• Graduated Repayment – Payments are lower at first and then increase, usually every two years. Payment amounts are designed to ensure your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans).
• Extended Repayment – Payments can be fixed or graduated and will ensure that your loans are paid off within 25 years.
• Income-Driven Repayment – IDR plans base your monthly payment amount on how much money you make and your family size. After satisfying a certain number of months of qualifying payments on an IDR plan, you can get the remaining balance of your loan(s) forgiven. Because payments are based on income and family size, you must provide your loan servicer with updated income and family size information each year so that your servicer can recalculate your payment amount.  Learn more here.
• Deferment or forbearance – If you’re in a short-term financial bind, you may qualify for a deferment or a forbearance. With either of these options, you can temporarily suspend your payments. But keep in mind that forbearance and deferment have pros and cons. If you’re eligible for a deferment or forbearance, you can temporarily suspend your payments. When it comes to deferment and forbearance, there are two important things to consider:
  • In most cases, interest will accrue during your period of deferment or forbearance. This means your balance will increase and you’ll pay more over the life of your loan.
  • If you’re pursuing loan forgiveness, any period of deferment or forbearance may not count toward your forgiveness requirements. This means you’ll stop making progress toward forgiveness until you resume repayment.
  • Public Service Loan Forgiveness (PSLF) – The PSLF Program forgives the remaining balance on your Direct Loans after you’ve satisfied the equivalent of 120 qualifying monthly payments (10 years) under an IDR plan while working full-time for an eligible employer.

For more details on each option visit: https://studentaid.gov/manage-loans/repayment/plans

3. Make a plan. Once you know what you owe and what your options are, make a plan that works for your current situation and future goals. Dream big but be realistic.
4. Make a budget. You knew this was the hard part, right? It’s also the most essential part.
5. Use Auto Pay and save money. Many servicers offer a discount if you agree to use autopay. It might seem like a small amount each month, but it adds up over time. Also, make sure you know how autopay works, and have a back-up payment method set up, just in case.
6. Stick to it. For most people this isn’t easy, but it does get easier with time (and increased earnings). When you started your education there were probably days when you wondered how you’ll ever make it to graduation, but you did. This is similar.

For the latest information about starting student loan repayments, visit the Federal Student Aid website.

Also check out our earlier article on Student Loan Repayment.