Congratulations on your college graduation! Now, get ready for your next milestone: student loan repayment.
Most student loan borrowers get a six-month grace period after graduating or dropping below half-time enrollment. This grace period applies to all federal student loans and some private loans. Monthly payments begin after your grace period. So, if you graduated in May, your student loan bills could start in November.
Student loan payments can make it difficult to find your financial footing, but there are ways to manage them. Spend a few hours taking stock of your student loan situation before your grace period ends. Then, consider strategies to lower your monthly payments.
Here’s your cheat sheet to Student Loan Repayment 101.
Log into your student loan accounts
Review your student loan situation: How much do you owe? What type of loans do you have?
Start by logging into your account on studentaid.gov. On your dashboard, you’ll see how much federal student loan debt you have. In the top-right corner, you’ll see the name of your federal student loan servicer, which is the company the government assigns to manage your repayment.
Create an account on your servicer’s website, too. You’ll manage billing with your servicer. If you have any questions about your student loans, your first step should be calling your servicer’s customer service department.
If you have private student loans, log into your lender’s website to see how much you owe and what your repayment options are. Options vary by lender.
If you’re not sure what type of student loans you have or who your lender is, check your credit report, which may show who holds your debt. You can also contact your school’s financial aid office. They may have records of where your tuition payments came from.
Set up automatic payments
In your servicer account, make sure your contact and billing information are up to date.
Set up student loan autopay to save money and time. For federal student loans, automatic billing will get you a 0.25 percentage point reduction in your interest rate each month. For example, a 5.50% interest rate could be lowered to 5.25%. This could save you money over the life of your loan.
Plus, autopay will help you avoid missing a monthly payment.
Some private lenders also offer an interest rate discount if you set up autopay. Ask your lender if they have this perk.
Choose a repayment plan
Your federal student loan servicer will automatically place you on the standard 10-year repayment plan, which splits your total debt into 120 monthly installments, plus interest.
If you owe a significant sum or your income is low, your monthly payments on the standard plan could be unmanageable. Instead, consider an income-driven repayment (IDR) plan, which caps your monthly payments at 10% to 20% of your discretionary income and potentially extends your repayment term up to 20 or 25 years. The government’s loan simulator can help you estimate monthly and overall payments on different student loan repayment plans.
Currently, borrowers can choose from two IDR plans:
Expect major IDR application processing delays. You could be placed into a 60-day or more administrative forbearance after your servicer gets your application, during which payments won’t be due.
Shop around for lower interest rates
You might be able to shrink your monthly student loan payments by refinancing to a lower interest rate. When you refinance, you replace your existing student loan (or loans) with a new loan that ideally has better repayment terms.
If you already have private student loans, there’s no downside to refinancing if you can get a lower interest rate or better repayment terms. You’ll need a credit score at least in the high 600s, steady income and a monthly debt-to-income ratio below 50% to qualify for the lowest rates. A qualified co-signer can also help you get a better rate.
To explore refinancing options, look for lenders that offer pre-qualification with a soft credit check. Soft credit checks won’t ding your credit score, but hard credit checks could.
Think twice before refinancing your federal student loans, even if you can get a lower interest rate. Refinancing will turn your federal loans into private loans. You’ll permanently forfeit federal borrower protections like access to flexible repayment plans, potential student loan forgiveness and generous forbearance policies.
