If you’re a recent college graduate with debt, you know you have to start making those dreaded student loan payments soon. But are you fully aware of the best ways to handle this new financial responsibility?
The world of student loans is confusing and there are a lot of potential pitfalls for new graduates. Don’t make the mistakes many of your fellow grads undoubtedly will; you have a clean slate – now don’t screw it up.
How to handle student loan payments after graduation
1. Use your grace period wisely
Though your federal student loans offer a standard six-month grace period after graduation before you need to start making payments, it doesn’t mean you should ignore that debt.
By being strategic about how you handle student loans during the grace period, you can set yourself up for success and save money, too.
Look at your monthly budget. Where is the money for your upcoming student loan payments going to come from? Do you already have enough money left over every month to cover them? If not, dig into your budget and find where you can slash costs to come up with it.
Look into income-driven repayment plans. If you can afford your payments on the 10-year Standard Repayment Plan, great. But if your budget is tight or your income is looking uncertain, you might want to explore alternative repayment plan options offered on federal student loans, such as Income-Based Repayment and REPAYE.
Keep in mind, however, that while these plans help lower monthly payments, they typically accomplish this by extending the repayment term of your loans. This means you’ll end up paying more money overall due to extra interest charges.
Make interest payments. Though you have no payments due during the grace period, interest will accrue on your unsubsidized student loans – that interest gets added to the principal balance and begins to accrue interest as well.
When that happens, you’ll be paying interest on your interest. Make sure you don’t grow your student loan balance even more after graduation and end up paying extra interest charges; consider making payments on the interest during the grace period.
Get yourself on a schedule. It takes time to get into the habit of making a new monthly payment. Making interest payments during the grace period (or more) is a great way to get a head start on your new student loan payment schedule and adapt your budget to the new expense.
2. Automate your student loan payments
Automating payments by having them directly debited from your checking or savings account means you’ll never forget to make a payment or pay late fees.
Plus, many private lenders will offer to lower your student loan interest rate (typically, a 0.25% reduction) as a thank you.
3. Pay more than the minimum
If you want to really want to tackle your debt head-on and save thousands of dollars over the life of your loans, pay more than the monthly minimum on your student loans.
This means putting every extra dollar available towards your debt. It might require living a modest lifestyle now, but prepaying your student loans means more financial freedom sooner after graduation.
See for yourself with the calculator below.
4. Claim your tax deduction
Paying interest on student loans qualifies you for a tax deduction – up to $2,500 for single filers, in fact.
If you paid more than $600 in interest over the year, your student loan servicer should send you Form 1098-E, which details exactly how much interest you paid. However, you can still claim the deduction even you don’t receive the form; simply contact your servicer(s) to find out the total amount.
5. Carefully weigh consolidation
The more student loans you have, the more tempted you may be to consolidate them into one. While it does make for one easy payment every month, you won’t lower your interest rate or save money in most cases.
In fact, if consolidating your loans means extending the term from 10 years to 20, you’ll likely end up paying far more in interest over the life of the loan. Plus, you won’t be able to be strategic about what loans and interest rates you tackle first.
Before consolidating, think about whether it will actually benefit you, and only do it if necessary.
6. Communicate with your loan servicer
If you’re having any kind of issue making payments, the last thing you want to do is ignore the problem.
Don’t wait until you’re late on payments to contact your loan servicer for help – and by all means, don’t wait until you’re in default. Contact your student loan servicer immediately so they can go over all of your options with you.
7. Treat deferment/forbearance as a last resort
If you have no way of making your federal student loan payments every month, entering into deferment or forbearance might be your only realistic option. But if you can do anything to lower your payments to an affordable level and keep paying them down, deferment and forbearance are a bad idea.
Your student loan payments will still be waiting for you when the deferment/forbearance period is up. Plus, if they’re unsubsidized loans in deferment – or any loan in forbearance – you’ll continue to accrue interest while payments are paused and end up growing your balance considerably.
8. Don’t count on bankruptcy
While it is possible to discharge student loans in Chapter 7 bankruptcy, there are no guarantees. For the court to consider it, you’ll have to file a Complaint to Determine Dischargeability, which initiates what’s known as an adversary proceeding. You’re then tasked with proving undue hardship.
Basically, bankruptcy is not a Get Out of Jail Free card, so do everything you can to pay off those loans.
9. Beware student loan debt relief companies
There are a multitude of student loan debt relief companies that promise to assist borrowers who are in over their heads – for a fee. However, in most cases, there is nothing a debt relief company can do for you that you cannot do for yourself.
Best case scenario, you work with a legitimate company and pay them money that could otherwise be put toward your student loan payments. Worst case, you end up with a shady debt relief company that not only takes your money, but doesn’t even do the work promised.
Bottom line: if you’re struggling with your student loan debt at any point over the life of your loans, the smartest thing you can do is educate yourself about your options and contact your student loan servicer for help.
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% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|