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? We’ve put together 11 pro tips for paying off student loans after graduation, to help you start dealing with your debt — and avoid the potential pitfalls.
By following these student loan tips, you can start off debt repayment on the right foot and avoid making costly mistakes.
- Use your grace period wisely
- Learn about your repayment plan options
- Automate your student loan payments
- Pay more than the minimum
- Claim your tax deduction
- Carefully weigh Direct loan consolidation
- Explore refinancing your loans for better rates
- Communicate with your loan servicer
- Treatment deferment and forbearance as a last resort
- Don’t count on bankruptcy
- Beware student loan debt relief companies
Tips for paying off student loans after graduation
Although 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 your debt.
Instead, use this time to track down the details of your student loans. Figure out how much you owe and to whom. Take note of your interest rates, and learn what your future monthly payments will be.
If possible, start making payments before your grace period is over to save on interest. Unless you have subsidized loans, your debt will accrue interest the entire time your loan is in deferment.
By making small or interest-only payments as a student or in the six months after graduation, you can prevent your balance from ballooning too much.
Federal loans automatically go on the standard 10-year repayment plan, but you have other options, too.
If your budget is tight or your income is looking uncertain, you can explore income-driven repayment plans, for example, such as Income-Based Repayment or REPAYE.
Keep in mind, however, that while these plans help lower monthly payments, they also extend your repayment terms. This means you’ll end up paying more money overall due to extra interest charges.
If you have private student loans, speak with your loan servicer about your options. They might be able to adjust your repayment terms if you’re struggling to make your monthly payments.
And if you have strong credit (or a creditworthy cosigner), you could explore refinancing your student loans for new terms and an adjusted monthly payment.
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 for signing up for autopay.
If you’re looking for tips for paying off student loans that could save you thousands of dollars, here’s one: Pay more than the monthly minimum on your student loans.
This means putting every extra dollar available toward 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.
Student Loan Payment Calculator
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 if you didn’t receive the form; simply contact your servicer(s) to find out the total amount.
The more student loans you have, the more tempted you may be to consolidate them into one. While direct loan consolidation 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 applying for federal consolidation, think about whether it will actually benefit you.
While direct consolidation won’t get you a lower interest rate, student loan refinancing could. Plus, refinancing multiple loans lets you simplify repayment by combining your loans into one.
When you refinance, you basically replace one or more of your old student loans with a new one from a private lender. If you meet credit and income requirements (or apply with a cosigner), you could get a better interest rate.
Plus, you can choose new repayment terms, usually between five and 20 years. The only downside is that refinancing federal loans turns them private, meaning you lose access to federal forgiveness programs, repayment plans and other protections.
Before applying to refinance your student loans, make sure you understand the pros and cons.
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.
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 or 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.
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.
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 also doesn’t even do the work promised.
Meredith Simonds contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 7.10%1||Undergrad & Graduate|
|1.99% – 6.65%2||Undergrad & Graduate|
|1.99% – 6.24%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 5.64%4||Undergrad & Graduate|
|3.18% – 6.06%5||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of June 23, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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.
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 0.18% effective July 10, 2020.