Top 5 Things to Do About Your Student Loans After Graduation
Your student loans are easy to forget about when youโre busy celebrating college graduation, looking for a job and perhaps preparing to move to a new city. But the summer after graduating is the perfect time to take charge of your loan payments and create your personal action plan to get out of debt.
Your student loans are easy to forget about when youโre busy celebrating college graduation, looking for a job and perhaps preparing to move to a new city. But the summer after graduating is the perfect time to take charge of your loan payments and create your personal action plan to get out of debt.
โWhatever debt you have, donโt treat it as a friend you have around,โ says Phil Schuman, director of financial literacy at Indiana University in Bloomington, Indiana. โYou should be mad at it. You should be doing everything you possibly can to get rid of it as fast as possible.โ
Follow this five-step plan to understand, streamline and attack your loans, starting now.
1. Know your loans inside and out
Before you can manage your debt, youโll need to understand how much you have to repay. Log in to the National Student Loan Data System to review the federal student loans youโve taken out. Create a Federal Student Aid ID to log in if you donโt already have one.
There youโll see a list of your loans and what date they were disbursed, the amount thatโs left to repay (known as the โoutstanding principalโ) and the interest thatโs already accrued. Click on the number of each loan in the left-hand column to view each loanโs interest rate and the name and phone number of its current servicer, or the company that manages the loan on behalf of the federal government.
If you have private loans, the financial institution that lent them to you (Discover, Wells Fargo or Citibank, for example) keeps track of your loan information. Make sure the lender has your current email and snail-mail address on file so they can send you all the updates youโll need as repayment inches closer.
2. Talk to your loan servicer
Once you know what loans youโll have to pay off, learn about your repayment options the old-fashioned way: Call your servicer. Thatโs the company that either lent you the money or that is now contracting with the federal government to manage your loans.
In many cases, your servicer will automatically place you on a 10-year standard repayment plan, which is one of the fastest ways to pay off your loans. If you have a lot of debt but not a lot of income, this could mean your payments are tough to make initially. For federal loans, youโll usually have a post-graduation grace period of about six months before repayment begins โ sometimes less for private loans. Take time at the start of your grace period to build a comprehensive understanding of your loans before you start paying them off.
Make a list of questions to ask your servicer so you understand the basics:
When is my first payment due?
Where do I send it?
How much will I owe per month on my current repayment plan?
What other repayment options do I qualify for?
How do I switch repayment plans?
Are discounts available if I sign up for automatic debit or take advantage of other repayment features?
Take detailed notes and keep them in a specific folder, either in Google Drive or in a physical place where you also store mail your loan servicer sends you. Itโll be easier to keep track of your loan details if you stay organized and do your best not to get overwhelmed.
3. Pick the right repayment plan for you
Now comes one of the most important parts of managing your loans: deciding how youโll pay them off. Federal loans have some options to choose from beyond standard repayment, including income-driven plans that take into account how much you earn after graduation. Thereโs also the Public Service Loan Forgiveness program for graduates who work in the public interest, which will make your remaining loan balance disappear after 120 on-time payments on your federal loans.
โThe nice thing about federal loans is itโs very consistent as to how it operates,โ Schuman says.
Plug in your loan and income information using the Federal Student Aid websiteโs Repayment Estimator to see how much youโll pay per month on each plan. If your loans will be more manageable on a graduated, extended or income-driven repayment plan, call your servicer and ask for more information about your eligibility.
Private loans work differently. Private companies arenโt required to offer specific alternative repayment options to borrowers like the government does, but various lenders may work with you to provide an interest rate reduction, extended repayment plan or a longer grace period if you foresee having trouble repaying your loans. Your best bet is to call your lender before any payments are due to discuss your options.
4. If you can, start paying during your grace period
With your long-term repayment plan squared away, consider ways to start bringing your debt down now, Schuman says.
โDonโt let the lending company tell you when you should start paying back your loans,โ he says.
If you have the means during your grace period, you could make a one-time payment toward the interest that accrued on your loans while you were in school before it capitalizes, or is added to your loan balance. Another, more powerful option is to start making payments toward your principal as soon as you graduate, while youโre technically in your grace period. If you ignore your student loans for six months after graduation youโll get used to having more money in your checking account than you will once repayment begins, Schuman says.
โYouโre getting the opportunity to develop six months of bad habits,โ he says.
Itโs important to note that if you start paying off your loans during your grace period, you should ask your servicer to apply your additional payments directly to your principal instead of toward a future monthly payment. That will ensure that the extra you pay brings your balance down faster.
5. Treat your loan like another monthlyย bill
Repaying your loans isnโt optional: Itโs absolutely necessary for your financial well-being. Missing payments and eventually going into default has serious consequences, so you should think of your loan payments as just one more monthly cost that you budget for.
Sign up for automatic debit so your payment comes directly out of your bank account, the way you may already pay your electricity or cell phone bill, Schuman says.
Once youโre used to making regular payments, you can also start to be strategic about which loans you pay off. You can apply extra money to high-interest loans so you donโt accrue big interest charges, which can make it seem like your loan balance hardly decreases. Or you can completely pay off smaller loansโ balances when youโre able to, which Schuman calls the โmomentum method.โ That can feel rewarding psychologically, he says, encouraging you to keep making extra payments so more loans disappear. Make sure your servicer knows which loan you want to apply additional payments to.
No matter how you do it, repaying your loans should be a top priority when you graduate. Pay them off smartly and strategically, and soon theyโll be off your plate and in your past.
This article was written by NerdWallet and was originally published at USA Today.