New Grads: How to Handle Your Student Loan Payments While Looking for a Job

how to pay back student loans

Congratulations, college grads! You survived all-nighters, dorms, exams, and the agony of choosing a major. And now you finally have that hard-earned degree.

So what’s next? Well, for starters, learning how to pay back student loans while looking for work.

As you prepare to embark on your first foray into the “real world,” chances are the grace period on your student loans (the time before you have to start paying them back) is going to feel way too short.

Here’s how you can make sure you’re ready when that first student loan payment comes due.

How to pay back student loans while looking for a job

While federal student loans and some private student loans offer a grace period, it might not seem like enough of a cushion when you’re looking for a job.

A recent survey by recruiting firm GradStaff found that respondents spent an average of just over three months looking for work.

If it takes you longer than that and your grace period runs out, you have other options for figuring out how to pay back your student loans. But those options will depend on whether your student loans are federal or private.

How to pay back federal student loans if you need a break

1. Income-driven repayment plans

If you have federal student loans and aren’t ready to pay them back yet, it’s time to choose a different repayment plan. What you’ll need is something called an income-driven repayment (IDR) plan.

Income-driven repayment plans are helpful when you’re looking for work. Essentially, they cap your payment amount at a certain percentage of your income.

These plans can keep you in debt longer. That’s because you’ll be paying less per month than you would have on your original repayment plan.

But when you’re struggling financially, they can be a lifesaver. Here are the different IDR plans you can choose from:

  • Pay As You Earn Repayment Plan (PAYE)
  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)
  • Income-Sensitive Repayment Plan

For most of these plans, your loans must be Direct Loans or consolidated into a Direct Consolidation Loan to be eligible. Your payment amount depends on the plan but can range anywhere from 10 to 20 percent of your discretionary income.

If you’re interested in more information or want to start an application for an income-driven repayment plan, check out the Federal Student Aid website.

2. Deferment or Forbearance

If IDR plans won’t work for you, then you have two more options: deferment and forbearance.

There are many times you might qualify for deferment, including if you’re an active-duty military service member, if you’re attending an approved graduate program on a fellowship, and more.

Most importantly to you, as you search for your first post-college job, you can apply for deferment if you are unemployed or able to find only part-time employment. For this request, you can defer for up to three years.

As for forbearance, there are two types: general (aka discretionary) and mandatory. General means your servicer can choose whether to grant you forbearance. Mandatory means your servicer must grant you forbearance.

There are various reasons you can claim either type of forbearance, but the ones below are most relevant to you:

  • You can request general forbearance if you encounter financial difficulties or experience a change in employment.
  • You are eligible for mandatory forbearance if the monthly amount you owe on your loans is equal to or exceeds 20 percent of your total monthly gross income.

Before you jump into either option, you should know the caveats:

  • Unless your loans are subsidized, you’ll have to make interest payments during your deferment.
  • You’ll always have to make interest payments during a forbearance.
  • Like IDR plans, deferment and forbearance can keep you in student loan debt longer than your original repayment plan would have.

You can find your type of deferment or forbearance and apply online via the Federal Student Aid site.

How to pay back private student loans if you need a break

Figuring out how to pay back student loans while you’re looking for work can be tricky if they are private loans. That’s because private student loans don’t come with the same repayment flexibility federal student loans do.

However, that doesn’t mean you’re without options. Your options will depend wholly on your lender. Here are some options many private student loan lenders provide:

  • Interest-only repayment options.
  • Deferment.
  • Forbearance.

Keep in mind that lenders are going to have a different approaches to requirements for whatever hardship programs they offer. The best thing you can do is contact your lender, see what kinds of programs it offers, and find out whether you qualify for any of them.

Whatever you do, don’t default on your loans

As you consider your options, it might seem easier to forget about all of it and let your loans slide for a while.

Don’t do it. Student loan default can hurt you in more ways than one.

Not only will student loan default hurt your credit score, but it will also show up on your credit report. And that could impact your ability to get a job, as potential employers can view your credit report.

“Checking a potential employee’s credit report is used frequently as an additional security measure to help verify an applicant’s identity,” explained Rod Griffin, director of public education for Experian.

Employers can’t see your credit score, and they have to ask permission before obtaining your report. But some jobs require it if you wish to be considered for employment.

Paying for that college degree is worth it in the long run

I remember what it was like looking for a job after college. For the few job openings in my field in my hometown, everyone seemed to want experience. But if employers wanted experience for an entry-level job, how was I supposed to enter the field?

With the growth of freelancing and side-hustle opportunities, new graduates have the ability to gain experience early without the permission or backing of a big company.

When you go for those first few interviews, remember you have a degree behind you. Sure, it was expensive, and maybe you have moments of regret for taking on student loans to pay for it.

But that degree will also provide you with more job opportunities. Georgetown University did a study last year on this subject and uncovered some interesting facts:

  • Of the jobs created after the recession, more than 95 percent went to college-educated job seekers.
  • College-educated employees make up 65 percent of the employees in the U.S.
  • There were only 80,000 jobs added in the U.S. for people who didn’t attend college – versus 4.6 million jobs for those who did.

Plus, the sooner you find a job, the easier it will be to repay your loans. Focus your efforts on finding a job and keeping your student loans as manageable as possible so you can ramp up your payments when your salary increases.

Your degree may not come with a golden ticket into the workforce. But it does come with more career opportunities. And for that, learning how to pay back student loans is a small price.

Now it’s up to you to decide how to use the opportunity.

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