Student Loan Repayment Basics
Step 1: Before graduating, do exit counseling
If you have federal student loans, you’ll be required to complete exit counseling before you graduate. Contact your financial aid office for details. Exit counseling is not only a good idea—it will help you figure out exactly how much you owe, who you owe it to, how to pay it back, and more—it’s actually required for students with federal student loans. Colleges can place holds on documents (transcripts, etc.) if you don’t complete exit counseling.
Step 2: Choose a repayment plan
With many student loans, including federal and private options, you can actually choose your repayment plan. Your choice should be based on your income. Check with your lender to know which plans are available to you.
- Standard repayment: equal payments every month for 10 years.
- Extended repayment: equal payments every month for up to 25 years. Though if you consolidate, your repayment period may be extended up to 30 years. This longer repayment period will lower your monthly cost but will increase your overall cost, since there will be more time for interest to accrue.
- Graduated repayment: monthly payments will start low and increase over time. Your repayment period will be up to 25 years.
- Income-Contingent repayment, for Federal Direct loans only: your income will be used to determine a monthly payment, meaning you won’t pay more than you can afford. Repayment can be extended for up to 25 years. The loan balance remaining after that 25-year repayment period, if there is one, will be cancelled.
- Income-Based repayment, for Federal Direct and FFEL loans only: same as above, except a different formula will be used to determine your monthly payment. Normally this plan has a lower monthly payment. To qualify you must demonstrate financial hardship.
Step 3: Start repaying your student loans
Once you graduate, or drop below half-time status as a student, you’ll enter a grace period (if you have one). You can use this grace period to start saving money for when repayment actually starts or you can go ahead and make early payments on your student loans to get ahead. Once your repayment period actually begins, you’ll be required to make on-time monthly payments.
Step 4: Stay in touch with your lender
It’s crucial that your lender always have your current contact information. If you move and don’t notify your lender, billing statements could be delayed. That could result in late payments and even penalties. Also, if you switch schools, be sure to let your lenders know. Last, but certainly not least, let your lenders know if you are experiencing financial hardship or otherwise can’t pay your student loans. Don’t ever just stop paying. That could result in penalties, legal action, and will negatively impact your credit score. You have two options when it comes to delaying your student loan payments:
Deferring your student loans is essentially extending the time before repayment starts, and must be requested before your grace period ends. You may qualify for deferment if you’re going back to school, for example. For details check with your lender.
Forbearance is generally for financial emergencies only, and can result in a reduction or postponement of payments for a certain amount of time. Forbearance is different from deferment in that it occurs after repayment has already begun. To qualify you will need to provide documented proof that you are unable to make your payments. Forbearance may last up to 12 months. If your financial situation doesn’t improve in that time, your lender may be able to extend forbearance for up to three years. An important note: interest will accrue on your loans during forbearance, ultimately increasing your total cost.
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