Student Loan Repayment Tips
Whether you just graduated, are taking a break from school, or have
already started repaying your student loans, these tips will help
you keep your student loan debt under control. That means avoiding
fees and extra interest costs, keeping your payments affordable,
and protecting your credit rating. If you're having trouble finding a
job or keeping up with your payments, there's important
information here for you, too.
Know Your Loans:
It's important to keep track of the lender, balance, and repayment
status for each of your student loans. These details determine your
options for loan repayment and forgiveness. If you're not sure, ask
your lender or visit www.nslds.ed.gov. You can log in
and see the loan amounts, lender(s), and repayment status for all of your
federal loans. If some of your loans aren't listed, they're probably
private (non-federal) loans. For those, try to find a recent billing
statement and/or the original paperwork that you signed. Contact
your school if you can't locate any records.
Know Your Grace Period:
Different loans have different grace periods. A grace period
is how long you can wait after leaving school before you have to
make your first payment. It's six months for federal Stafford loans,
but nine months for federal Perkins loans. For federal PLUS loans, it
depends on when they were issued (see
details). The grace periods for private student loans vary, so
consult your paperwork or contact your lender to find out. Don't miss
your first payment!
Stay in Touch with Your Lender:
Whenever you move or change your phone number or
email address, tell your lender right away. If your lender needs to
contact you and your information isn't current, it can end up costing
you a bundle. Open and read every piece of mail - paper or electronic
- that you receive about your student loans. If you're getting
unwanted calls from your lender or a collection agency, don't stick your
head in the sand - talk to your lender! Lenders are supposed to work
with borrowers to resolve problems, and collection agencies have to
follow certain rules.
Ignoring bills or serious problems can lead to default, which
has severe, long-term consequences (see tip 6 for more about default.)
Pick the Right Repayment Option:
When your federal loans come due, your loan
payments will automatically be based on a standard 10-year repayment
plan. If the standard payment is going to be hard for you to cover,
there are other options, and you can change plans down the line if you
want or need to. Extending your repayment period beyond 10 years can
lower your monthly payments, but you'll end up paying more interest -
often a lot more - over the life of the loan. One important
option is the Income Base Repayment program. It can cap
your monthly payments at a reasonable percentage of your income
each year, and forgive any debt remaining after 25 years of
affordable payments. Forgiveness may be available after just 10 years of
these payments for borrowers in the public and nonprofit sectors (see
tip 10 below).
Private loans are not eligible for IBR or the other federal loan
payment plans, deferments, forbearances, or forgiveness programs. However, the lender may
offer some type of forbearance, typically for a fee, or you may be able to make interest-only payments
for some period of time. Read your original private loan paperwork carefully and then talk to the
lender about what repayment options you may have.
If you're having trouble making payments because of unemployment,
health problems, or other unexpected financial challenges, remember that
you have options for managing your federal student loans. There are
legitimate ways to temporarily postpone your federal loan payments,
deferments and forbearance. For example, an unemployment deferment might be the
right choice for you if you're having trouble finding work right
now. But beware: interest accrues on all types of loans during
forbearances, and on some types of loans during deferment, increasing
your total debt, so ask your lender about making interest-only payments
if you can afford it.
If you expect your income to be lower than you'd hoped for more than
a few months, check out Income-Based Repayment. Your required payment in
IBR can be as little as $0 when your income is very low. See tip 4 for
more about IBR and other repayment options.
Stay out of Trouble!
Ignoring your student loans has serious consequences that can last a
lifetime. Not paying can lead to
delinquency and default.
For federal loans, default kicks in after nine months of non-payment.
When you default, your total loan balance becomes due, your credit
score is ruined, the total amount you owe increases dramatically, and
the government can garnish your wages and seize your tax refunds if
you default on a federal loan. For private loans, default can happen
much more quickly and can put anyone who co-signed for your loan at risk
as well. Talk to your lender right away if you're in danger of default.
You can also find helpful information at
Lower Your Principal if You Can:
When you make a federal student
loan payment, it covers any late fees first, then interest, and finally the
principal. If you can afford to
pay more than your required monthly payment - every time or now and then - you can lower your principal,
which reduces the amount of interest you have to pay over the life of the loan. Include a written request
to your lender to make sure that the extra amount is applied to your principal! Otherwise it will
automatically be applied to future payments instead. Keep copies for your records and check back to be
sure the overpayment was applied correctly.
Pay Off the Most Expensive Loans First:
If you're considering paying off one or more of your loans ahead of
schedule, or trying to reduce the principal, start with the one that
has the highest interest rate. If you have private loans in addition
to federal loans, start with your private loans, since they almost
always have higher interest rates and lack the flexible repayment
options and other protections of federal loans.
To Consolidate or Not to Consolidate:
consolidation loan combines multiple loans into one for a single monthly payment and one fixed
interest rate. If this is appealing, here are some
pros and cons to consider.
You can consolidate your federal student
loans through the Direct Loan program, and this
can help you figure out what your interest rate would be. For private consolidation loans,
shop around carefully for a low or fixed interest rate if you can find one, and read all the fine print.
Never consolidate federal loans into a private student loan, or you'll lose all the repayment options and
borrower benefits - like unemployment deferments and loan forgiveness programs - that come
with federal loans!
There are various programs that will forgive all or some of your federal
student loans if you work in certain fields or for certain types of employers.
Public Service Loan Forgiveness
is a new federal program that forgives any student debt remaining after 10 years of qualifying
payments for people in government, nonprofit, and other public service jobs. Find out more at
www.IBRinfo.org. There are other federal loan forgiveness options
available for teachers, nurses, AmeriCorps and PeaceCorps volunteers, and other professions,
as well as some state, school, and private programs (see some examples).