College graduation is a time of new beginnings. It’s also when you’ll have to begin making student loan payments soon, potentially for the first time.
Federal student loans and many private student loans allow you to defer payments while you’re in school and for up to six months after graduation, but this grace period will be over before you know it.
“Grace periods give you time to transition between school and work, but those six months go by quickly,” said Misty Lynch, a certified financial planner and lead financial consultant with John Hancock.
We consulted experts and identified eight key steps you’ll need to take to be ready when your grace period ends.
1. Start planning early
You might not be looking forward to making student loan payments, but it’s important to not procrastinate.
“Plan ahead to make sure you start loan payments as soon as they’re due,” Lynch advised. Starting on the process early gives you time to take care of any paperwork you need to complete.
“If you’re applying for an Income-Based Repayment Plan, it takes time to complete the application and verify your information. Don’t wait until the day before your first payment is due to set this up,” said Vicki Jacobson, a financial aid coordinator at Missouri State University. See below for more information about this process.
Jacobson recommended you contact your servicer around two to three months before the end of your grace period. “Call your servicer over the summer when they’re more easily available and can help you select a repayment plan,” Jacobson said.
2. Find out what and whom you owe
If you’re like most students, you probably took out multiple loans, which means you’ll need to get ready to deal with multiple lenders.
“Know how much you owe and who you owe,” Jacobson said. She advised visiting the National Student Loan Data System to find out which companies are servicing your federal loans and visiting AnnualCreditReport.com to get your credit report, which will list all your private loan lenders.
You also can pull up information on all your loans through the Student Loan Hero dashboard, one of the many free resources available on our site.
“Compile a list of all your loans, the loan ID numbers, the monthly loan payments, the due dates, interest rates, and lender contact information,” advised Mark Kantrowitz, a student loan expert and the publisher of Private Student Loans Guru. Your school’s financial aid office can help you find this information, he said.
3. Contact your lender
The next step is to contact your lenders to confirm that they have your updated address, to ask how to set up an online account, and to explore repayment options.
“The lender will send you coupon books or statements,” Kantrowitz said. “However, the payment is still due even if you don’t receive them.”
4. Set up a budget
It’s important to know how much money you’ll be able to devote each month to repaying student loans because that amount will influence your choice of repayment plans. Setting up a budget allows you to see how much money you’ll put toward your loans and which expenses can be trimmed so that you can pay back your debt as quickly as possible.
“Your student loans should be at the top of your budget since default interest rates are high and loan debt is nearly impossible to cancel,” Lynch said. “You may be able to negotiate in other areas, but you will not have much wiggle room when it comes to your student loans.”
You should live below your means as long as you can to get rid of student debt quickly, she advised. This effort might include keeping your old car a little longer or living with a roommate.
5. Explore repayment plan options
Once you know the names and details of all your lenders and the amount you can afford to pay, visit the company websites to explore repayment options. There are different ones for private and federal loans.
Federal student loans offer a standard repayment plan, a graduated plan, and income-driven options. Check out our complete guide to student loan repayment to learn about all the possibilities for repaying federal and private student loans. You also might be able to score a lower interest rate by refinancing your debt, but first, make sure you know the pros and cons of student loan refinancing.
Select a plan that has the highest monthly payment you can afford so that you can pay off your loan as quickly as possible and save on total interest charges, Kantrowitz advised. However, there are caveats. If you qualify for Public Service Loan Forgiveness, you’ll need to enroll in an income-driven repayment plan.
6. Sign up for your plan
After you evaluate repayment plans carefully, sign up for your choice on your lender’s website or call the company to complete the process. You’ll want to find out what information you need to submit, if any, to be eligible for your chosen plan.
Kantrowitz also advised signing up for direct debit so that payments are made automatically from your checking account. “Not only will you be less likely to be late with a payment, but many lenders give a slight discount as an incentive,” he said.
7. Start paying right away if you can
Although many student loans have a grace period, you don’t have to use it. In fact, it’s a great idea to start making payments as soon as you can after graduation.
“Students can pay down the interest that has accumulated on their federal Direct Unsubsidized Loans during their grace period,” Jacobson said. “Any interest which has accumulated will be capitalized, or added to, the principal loan when the grace period ends.”
In that case, you’ll have to pay interest on the accrued interest as well as on the principal balance, which makes repayment costlier.
8. Get help
Paying your loans ASAP after graduation often makes sense, but not everyone can do it. You might not find a job right away, or your income might be too low to start payments. If this happens, you still have options.
“You can apply for forbearance if you can’t find any way to pay the student loan bill,” Lynch said. Federal loans and most private loans allow you to enter into forbearance, which pauses your monthly payments. This option should be a last resort, though. “Putting off your loan payments for any amount of time means more money will be required to make monthly payments in the future,” she warned.
If it takes you time to get on your feet, don’t feel bad. Be proactive and talk to your lender immediately to find out options before your payment becomes due.
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