You’ve graduated from college – congratulations! You’ve completed a major accomplishment. Before you celebrate too much, however, it is time to look at some of your new adult responsibilities, like fitting that upcoming student loan payment into your budget.
Most student loans require payments starting six months after graduation, but it is never too early to get a jump start and understand what to do when your first payment is due.
Look at your total loan balance
Before you make your first payment, you should first understand what you owe. Look at the total balance of each student loan you have to get an idea of the challenge ahead.
Whether you owe a few thousand dollars or a few hundred thousand, engrain that number in your head. That is your big financial hurdle to overcome.
If you have not taken a look yet, log into your student loan servicer’s website to view your loan balances and expected minimum student loan payment. You can also review your monthly statements to find these numbers.
When I graduated from my MBA program, I had about $40,000 in student loans to pay off. The average 2016 graduate owes $37,172.
You are not alone in battling student loan debt: 43.3 million Americans have student loans. However, you are going to be ahead of the curve when you come up with a rock-solid repayment plan before your first payment is due.
Understand your loan amortization schedule
Now that you know how much you owe, you need to understand how much that will cost you. Some of your student loans be subsidized and therefore, aren’t accruing interest yet – but that period is coming to a close. Unsubsidized loans, on the other hand, are racking up interest as we speak.
Interest will accrue on your current student loan balance according to your interest rate. Undergraduate Direct Loans currently have a student loan interest rate of 4.28%, so we will use that as an example.
If you have one loan of $10,000 at 4.28%, you can calculate the interest that accrues each month. That’s what it costs you monthly to have the outstanding loan. In this case, your monthly cost is $10,000 x (4.28%/12), or $35.66 per month.
Each month, when you make a payment, your payment is broken into two parts. First, your funds go to pay off the interest accrued during the prior month. Next, the leftover amount pays off a portion of your loan principle, or that original $10,000.
If you have a $102 monthly payment (assumed to be a brand new, 10-year loan), the first $35.66 of your payment will go to interest. The remaining $66.34 will go towards lowering the $10,000 balance.
Next month, your interest payment will be a little bit smaller and your principal payment amount will be a little bit bigger. This happens each month until the loan is paid off.
Make room in your budget
Next, let’s take a look at your overall budget. There are lots of ways to budget, so pick the one that works best for you.
Add up your total monthly income (hopefully you have a job or will shortly after graduating), then subtract your fixed monthly expenses such as rent and insurance. Next, subtract your other flexible but “must-have” expenses like groceries. That leaves you with your discretionary budget.
Part of that budget should be allocated to things you enjoy, such as going to the movies, bars, or traveling, but don’t put too much into fun stuff while still paying your student loans.
At the very least, you need to budget for your minimum payment before spending on fun stuff. If you can budget even more for your student loans, they’ll be paid off much faster and save you a whole heap of money on interest.
Let’s look at how much you can save.
How much you can save from early payments
Using the student loan prepayment calculator below, you can see that making the minimum payment each month will let you pay off your loan completely on the final payment due date.
However, paying a little extra each month can knock years off of your loans. I made huge extra payments and paid off my student loans in two years.
The calculator above didn’t exist yet when I paid off my loans, but you are lucky and can plug in numbers to see just how quickly you can get out of debt. With the $10,000 loan example above, paying an extra $10 per month on top of the $102 minimum payment saves $249 in interest and the loan would be paid off three months early.
Make that $50 extra per month to save $892 in interest and 44 months early. Tack on another $100 extra per month to save $1,287 in interest, enough for a plane ticket to Europe, and pay off the loan in half the time. You get the point.
Pay early, pay often
Remember, just because you don’t have to make payments for the first six months doesn’t mean you have to wait either. If you have income, get started on those payments as soon as possible.
Accruing interest without making payments means your loans are just going to grow every month. At the minimum, try to make a payment each month to cover the interest amount so your loan doesn’t grow any more.
When I was paying off my student loans, I setup an automatic payment each payday. Rather than wait for my bill to come, I cut my minimum payment in two and paid that each time I had a paycheck come in so I didn’t ever feel like I was living without the extra income.
Over time, I increased that payment every payday until I was making a full payment twice each month. Then, every time I had a big windfall such as a tax refund or bonus at work, I put that entire amount into my loans. Fast forward to 736 days after graduation and I was student loan debt free.
So what are you waiting for? Go make that first payment already!
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|