It may not be your first priority, but preparing to repay your student loans should be on your pre-graduation to-do list. How you manage your student loan payments will shape your finances for decades to come, so know what you’re dealing with before you get swept up in the day-to-day demands of post-graduate life.
Before you leave school, also make sure you know the answers to the following questions. Good news: We’re giving you them (or at least telling how to find them on your own).
1. What kind of loans do I have?
You either have private student loans or federal loans. You can look up your federal loans using the National Student Loan Data System (NLDS). You should have the paperwork from your lender or student loan servicer (private and federal) from when you took out the loan. Private loans generally come from traditional banking institutions, while federal loans are issued by the government. Common federal loans include Direct subsidized loans, Direct unsubsidized loans and Perkins loans.
2. Whom do I owe?
You can find this information in the resources referenced above. Your financial aid office should have information on file as well, since they receive the money. If you haven’t gone through student loan exit counseling at school, you need to before you graduate. They’ll explain whom to pay, and it’s the perfect time to ask any questions. Once you know who’s managing your loans, set up an online account to access all your information.
3. What are my repayment options?
This depends on the type of loans you have. Private student loan repayment tends to follow a typical installment loan repayment structure, in which you make monthly payments for a fixed loan term. Federal student loans offer more options. The default play is called standard repayment: fixed monthly payments for 10 years. If you want a lower monthly payment when you start out, you can change your repayment plan at any time for free, though the change may not take effect immediately. If you want to enroll in an income-driven repayment plan, graduated repayment or extended repayment, be sure to request a new plan through your student loan servicer as soon as you can.
4. How much are my monthly payments?
For loans with a set repayment term, the payment will be the same every month if you have a fixed-interest rate (as all federal loans do), or your monthly payment amount will change if you have a variable-interest rate (as some private loans do). Monthly payments through income-driven plans will depend on how much money you make. You should be able to get this information from your lender or servicer.
5. When’s my first payment due?
Federal student loans generally have a grace period of six months, meaning your first payment comes due six months after you graduate, leave school or drop below half-time enrollment. Some grace periods are nine months. If you have a private lender, you may not have a grace period — find out as soon as possible.
6. How do I pay?
You’ll start hearing from your lender or servicer soon if you haven’t already. Like most bills, you can go the old-school route of sending a check, or you can pay online. Keep in mind you don’t have to wait till your grace period ends to make a payment, and you can also enroll in automatic payments to make sure you don’t miss any. On that note: You don’t want to miss any student loan payments, because it will damage your credit, and your credit score plays a role in how much you pay for other credit products, as well as renting a home or buying a cell phone. You can keep tabs on how your student loans are affecting your credit by getting two free credit scores every month.
7. What’s my interest rate?
This should be in your loan paperwork and in your online account. Make sure you know if it’s a fixed- or variable-interest rate.
8. Do I Really Have to Repay My Student Loans?
Yes, you do have to repay your student loans.
Failing to make payments on your federal or private student debt can have serious negative impacts on your overall financial picture.
The first day after a missed loan payment, your loan becomes delinquent, and it stays that way until your payments are up to date. Each missed payment might also result in a late fee.
Delinquent federal student loans aren’t reported to the credit bureaus until they are more than 90 days past due. You have a chance to catch up before it negatively impacts your credit. But in the case of private loans, your lender may report it to the credit bureaus as early as 30 days past due. Uncle Sam can withhold your wages and tax refund, and federal sources of income, like Social Security, can also be garnished. It’s nothing personal. The government needs to get its money back from you to lend out to next year’s students.
Having late payments on your credit report can negatively impact your credit score and make it more difficult to open credit cards, borrow money or even get an apartment.
9. How can I make repaying my loans easier?
If you have multiple federal student loans, which most borrowers do, you can consider consolidating them. With a federal Direct consolidation loan, you can qualify for certain loan forgiveness and loan repayment options (though you may not have to consolidate to qualify), and you’ll only have to make one monthly payment, rather than several to multiple servicers.
You could also consider refinancing multiple loans with a private lender, but know that you’ll be giving up many of the benefits that come with federal loans if you do this. There is no federal refinancing option. You can also enroll in automatic payments to make your life a little easier — just be sure to check that it goes through every month and that your bank account has enough money to cover the bill.
10. How can I make my loans more affordable?
Among the benefits previously noted, enrolling in automatic payments usually gets you a 0.25% discount on your interest rate. Private loan refinancing could also help you save money if you have good credit and can qualify for a lower interest rate. Additionally, changing your repayment plan to a longer term or an income-driven plan can lower your monthly payments.
There’s another way to look at loan affordability: long-term savings. For example, all the interest your loan accrued while you were in school will be added to the principal once your grace period expires, meaning you’ll have to pay interest on interest. You can avoid this by paying off the interest before your first loan payment comes due. You can also pay more than your minimum payment each month, which can help you pay off your loans early.
Student loans can be complicated, so reach out to your student loan servicer if you have questions. Conversely, if you’re having issues with your student loan servicer, you can file a complaint with the Consumer Financial Protection Bureau.
By Christine DiGangi