Student loan repayment guide
After leaving school, whether you have graduate or not, your student loans will become due. We’ve outlined what to expect when it comes to repaying your student loans.
Exit counseling for federal student loans
When you are getting ready to leave college, your financial aid office will send you a notice that you are required to complete exit counseling for your federal (Perkins, Direct, and GradPLUS) student loans. Failure to do so could mean that your college will place a hold on such documents as transcripts until the exit counseling has been completed. These sessions of self-paced web counseling are beneficial because you can learn about the repayment options available to you. You will also learn about the serious consequences of not making your loan payments.
Student loan grace periods
For many student loans, including federal loans, there is a grace period after you leave school or drop below a half-time status, in which you don’t have to begin repayment. Borrowers have a six-month grace period for federal Direct Loans and a nine-months for federal Perkins Loans. Private student loans have a variety of repayment options; most allow you to defer payments while you are in school but the grace periods following your departure or graduation can vary.
Knowing your expected income after college
During school, be sure to track the amount you are borrowing each year, know what the expected monthly payments will be, and compare them to your expected income after college. This will help you stay on top of your student loan debt and keep it to a manageable amount. Unless you plan to enter a field that will provide a large enough salary to meet your monthly obligations, your student loan payments could take up a considerable portion of your monthly budget.
Stay in contact with your lender or servicer
One of the many responsibilities you have after leaving college is to stay in contact with your student loan servicing agency or lending company. It is important that they have your current contact information so they can reach you regarding your student loan repayment. Without current information, your billing statements could be delayed. Remember: even if you don’t receive a bill because your loan servicer cannot reach you, your payment is still due on time. In addition, if you decide to switch schools, you need to let your lender(s) know. If you don’t contact your lender to notify them of your new contact information or your in-school status, you might be required to begin repaying your loan.
Choosing a plan to repay your student loans
With federal student loans, you can choose your repayment plan, which can be influenced by how much you can actually afford to pay. For private student loans, you often have already selected the repayment plan when you took out the loan.
The option most familiar to most borrowers for federal student loans is the Standard Plan, which requires equal payments over a 10-year period. With an Extended Plan, you also make equal payments each month, but repayment can take up to 25 years (if you consolidate it could be up to 30). Similarly, with a Graduated Plan, payments can also be spread out over 25 years. However, with that plan your payments will start out low and gradually increase at regular intervals.
There are also various plans offered for federal student loans that take into account your income. Descriptions of each can be found in the Federal Student Aid website.
A standard plan, providing fixed payments over a period of 10 years
Extended plans, which provide payments for 12 to 25 years
Graduated plans, which provide low early payments that get bigger with each year
Income based plans, which tie payments to annual income
These different payment plans can be helpful depending on a borrower’s financial situation, but unfortunately, research suggests that few students either know about or take advantage of these programs. Make sure to ask your student loan servicer about each of these options to find the one that is right for you.
Deferring student loan payments
Taking the option to defer your student loan payments may help you in some situations when money is tight, for example, if you decide to go back to school. If you enroll in a qualified program at a university or college and attend at least on a half-time basis, then you could apply through your loan servicing agency for a deferment. If your situation is approved, not only are your payments postponed, but the interest on a subsidized Direct Loan does not accrue during the period (for unsubsidized Direct Loans and private loans, the interest would still accrue).
Getting a student loan forbearance in an emergency
When you are facing an emergency financial situation, you may be able to request a student loan forbearance. This is an option when you don’t meet the qualifications for a student loan deferment but need to temporarily postpone making payments on your student loan. You will be required to provide your student loan servicing agency with documented proof that you are unable to meet your required payments. Depending on your situation, this option may help you for up to 12 months. If the situation continues, your loan servicing agency may review your case and renew the forbearance for up to three years. One disadvantage is that the interest on your student loan will continue to accrue during the forbearance period.
What happens to your student loan if you die?
It’s not a pleasant thought, but take heart: there is no need for you to worry about the impact your federal student loans will have on your family if you should die. (Note: this is not always true with private student loans. If you have a private student loan that required a co-signer, your co-signer might be responsible for repayment.) In this case, your federal student loans are completely discharged and no debt will be passed on with your estate. Your family will need to follow a few steps for this to happen, including sending a copy of your death certificate to the student loan servicing agency. Likewise, if you should find yourself afflicted with a permanent disability, you can also begin the process to have your student loans discharged. You will need to supply medical documentation regarding your disability.
Does your student loan qualify for forgiveness?
Some students are surprised to realize that not completing your degree or having difficulty finding employment after graduation does not meet the qualifications for loan forgiveness. The federal government created the Public Service Loan Forgiveness Program to help borrowers who work full-time in public service jobs repay eligible federal Direct Loans. Borrowers qualify for forgiveness of the remaining balance due after making 120 payments on loans while employed full-time by certain public service employers. The qualifying 120 payments must be made in one or more of the following federal repayment plans:
- Income Based Repayment (IBR) Plan
- Income Contingent Repayment Plan
- Standard Repayment Plan with a 10-year repayment period
Consult with your financial aid office or Department of Education for more specifics on these programs.
Student loan consolidation or refinance
While determining how to repay your student loans, be sure to look into both federal loan consolidation and private loan refinance. Both options can combine your multiple student loans into one manageable loan.
Paying off student debt is an intimidating process, but with the proper amount of attention and planning, borrowers can navigate repayment without too much difficulty.