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The first year after college is an exciting one. If life is going according to plan, you’re putting your degree to use with a job in that field. You’ve gotten a new apartment. Whether it’s on your own or with a roommate, you have your own place, and that’s a major step. You’re meeting new people, doing new things, and it feels great to be a full-fledged adult. Your life is full of hope and anticipation of what the future holds. Then, the real world taps you on the shoulder and says, “Aren’t you forgetting something?”
Your student loans are due!
Most students who take out student loans defer payment until they’re out of school, and they typically have a six-month grace period after leaving school in which to get a job and a place to live before beginning repayment. For college students who graduated in May, that grace period is nearing its end. Now that you’re putting that college education to use, it’s time to start paying for it.
Getting Loans Paid Off
If you have student loan debt, you’re not alone. In fact, student debt in the U.S. has reached over $1.5 trillion, with the average student graduating with nearly $40,000 in student loan debt. The thought of repaying your debt can seem daunting, especially if you have a lot, but if you remain organized and diligent, you can get your loans paid off and get on with your life.
Make a List of Your Loans
You may have several loans from a single source, but that’s a rarity rather than the norm. Make a complete list of all your loans, loan numbers, due dates, and servicers. You can’t rely upon your servicers to take care of everything. It’s easy for payments to be missed and for loans to go into default without you even knowing it. If you’re not sure if your list is complete, you can find a complete list at the National Student Loan Data System.
Use Your Phone
Set up reminders for upcoming payments so you never miss one.
Many lenders will give you a small discount on your interest if you do. Autopay will also help you avoid any late fees.
Make a Budget
Ideally, you’ve found a job and an apartment and have an idea of how much money you’ll have for monthly student loan payments.
Look into Repayment Options
It’s good to have an idea as to which payment plan you’re going to use before the first payment is due. There are no penalties for early repayment of student loans, so if you can afford a little extra each month, it’ll help you pay them off sooner while paying less in interest.
Look into Loan Consolidation
You may be able to consolidate all your federal loans into one payment and all your private loans into another (federal and private cannot be combined), which can simplify the entire loan repayment process.
While consolidating may streamline things, it may not save money.
If your monthly student loan payments on your federal loans are simply too much, you may be able to switch to an income-driven plan related to your discretionary spending, which is the money you have left over after taxes and bills are paid. Depending on the type of plan, 10-20% of your discretionary income is used to pay back the loan, but keep in mind that these are typically plans that last 20-25 years, which will cost you a lot more in the end.
What to Do if You Can’t Afford the Payments
Let’s face it: life rarely goes according to plan. Six months after you graduate, you still may not have not found a job. You may have been unable to find a job in your field and had to settle for something that doesn’t pay as well. If you’re unable to afford any of these plans, there may be other options.
You may be qualified to put off payments with a deferment. If you do qualify, interest may continue to accrue during this time of non-payment, depending on the type of loan you have.
As soon as your first payment date arrives, or even sooner, you’ll begin to receive offers from private companies offering loans to help you pay off your student loans. Be cautious of them! Some are completely fraudulent, while others will help you but likely charge hefty fees. The U.S. Department of Education will help you figure out the best option for your needs, and do so at no cost to you.
Some areas of study allow student loan forgiveness, such as certain areas of the medical field or if you agree to some community service. See if you qualify, here.
All loans have interest rates, and some could be much higher than others are. Many people will target those to make higher or extra payments on so they save money by paying off the higher interest loans first. When that happens, you can put more money toward the other loans. If you consolidate your loans, you can’t take this approach, as the interest rate on the consolidated loan will be an average of the rates on the loans you’re consolidating. Federal consolidation loans round up to the nearest ⅛ of a point.
Most people who consolidate their student loans do it so they can have a lower monthly payment by taking longer to pay them off. However, consider that the sooner you can pay off your loans, the more money you’ll save and the better off you’ll be. To see how much a longer repayment plan will cost you, a student loan repayment calculator can be found here.
Make More Money
Look for ways to earn extra money to put toward your loans, such as getting a second job or working a side hustle. Put any “extra” money such as bonuses, tax refunds, etc. directly toward your loans.
Take solid steps toward saving money. Clip coupons, use a change jar, and bring lunch or coffee from home. More and more students are living at home with their parents after graduation to get a jump start on paying down their student loan debt. By putting as much money toward loan repayment as you can, you can not only save a lot of money in interest, but when you do move out on your own, you won’t have student loan payments taking a big chunk out of your paycheck.
What Happens if I Default?
The answer is this: nothing good! The government can garnish your paycheck or Social Security payments as high as 15%. It can also tack up to 25% onto your loan for collection fees. It’ll also show up on your credit report as a derogatory account and could greatly hinder your ability to get an apartment, a car, and any other kind of credit.
It’s important that you keep your loans in good standing, if possible. If you’re having problems making your loan payment because you’re salary is paid after the due date, you may be able to switch the date by calling your loan servicer and explaining the problem. Even if you choose the standard 10-year federal repayment plan, you can change your plan at any time. With all the available options, defaulting on your student loans should never be the answer.