tips for repaying your student loans
Posted : May 28, 2014
Last Updated : October 28, 2015
After you graduate, leave school, or drop below half-time enrollment, you will soon have to start repayment on your student loans. Understanding the repayment process for these loans will help you build a solid financial foundation. Utilize the following tips to repay your student loans.
Monitor loan information. Keeping track of important student loan information is essential during the course of repayment. You can monitor the balance and repayment status for each of your federal student loans by creating an account with the National Student Loan Data System. Note: Private loans will not be listed under this data system.
Find out your grace period. It's imperative to know the grace period for your loans so you can financially plan ahead and not miss your first payment. A grace period is a certain amount of time after you graduate, leave school, or drop below half-time enrollment where you are not required to make payments on certain student loans. Loans will have varying grace periods. Subsidized and Unsubsidized Federal loans have a six-month grace period. Perkins loans have a nine-month grace period. There is no grace period for PLUS loans; however, if you are a graduate or professional student PLUS borrower, you can defer repayment while you are enrolled at least half time and (for Direct PLUS loans first disbursed on or after July 1, 2008) for an additional 6 months after you graduate or drop below half-time enrollment. Private student loans will have differing grace periods so contact your loan servicer for more details.
Research repayment options. The standard repayment plan is automatically established for all of your federal student loans unless you choose another repayment option. The standard repayment plan allows you to pay off your debt within 10 years, and the monthly installment amount remains the same over the life of the loan. If the standard payment does not fit in with your budget, you should research and consider the other repayments options:
Graduated repayment plan – Gives you a smaller payment amount in the beginning and gradually increases the payment amount every two years.
Extended repayment plan – Allows you to pay the least possible amount per month for 10 to 25 years.
Income-based repayment plan – Bases your student loan payments on income and family size. Maximum monthly payments will be 15 percent of discretionary income.
Pay as you earn repayment plan – Bases your student loan payments on income and family size. Maximum monthly payments will be 10 percent of discretionary income.
Income-contingent repayment plan – Bases your loan payments on your adjusted gross income, family size, and the total amount of your Direct loans.
Income-sensitive repayment plan – Ties the monthly payment to a percentage of your monthly income. Your monthly payment bill will be proportional to the amount you are currently making.
Because each of the repayment options will have pros and cons and eligibility requirements, you should research each option extensively and contact your loan servicer for more information. Private loans are not eligible for the federal loan repayment plans. Contact your private loan servicer to inquire about repayment options.
Set up automated payments. Electronic debit takes the hassle out of repaying your student loans. To avoid late payments and to receive a possible reduction in the interest rate on your loans, you should sign up to have your student loan payment automatically withdrawn from your checking or savings account. Contact your loan servicer for details on how to set up automated payments.
Make extra payments on your principal. Monthly student loan payments will first apply to any late fees, then interest, and then the principal. Paying down the principal of your student loan can reduce the amount of interest that you have to pay over the life of the loan. Make an effort to apply any extra income to your principal amount throughout repayment.
Work with your loan servicer if you have trouble making payments. If you are having trouble making payments on your federal student loans, contact your loan servicer immediately. The loan servicer staff will work with you to change your repayment plan or determine your eligibility for deferment or forbearance. With deferment, you can postpone your scheduled student loan payments for various reasons, such as unemployment, economic hardship, and student enrollment. If you do not meet the requirements for a deferment, you might qualify for forbearance, which permits the reduction of payments, an extension of time, or the temporary cessation of payments. If you stop making payments and don't obtain a deferment or forbearance, your loan could go into default, which has serious consequences that may result in court costs and tarnished credit.
Weigh the pros and cons of consolidation. A consolidation loan combines multiple loans into one loan for a single monthly payment. Consolidation generally extends the repayment period, resulting in a lower monthly payment. However, you will pay more interest since you will be making payments for a longer period of time. Consider your own specific situation and weigh the pros and cons.
Take advantage of student loan forgiveness. Under certain circumstances, you may be able to have part or all of your student loans forgiven. The Public Service Loan Forgiveness program and the Teacher Loan Forgiveness program are two of the main loan forgiveness options available. Other options exist for volunteers, military recruits, medical personnel, etc. Some state, school, and private programs also offer loan forgiveness. Check with your school or loan servicer to see if you may qualify for student loan forgiveness.
Reap the tax benefits. You may be able to deduct interest you pay on qualified student loans when filing your taxes. Deductions allow you to reduce your tax liability, which is a nice tradeoff for having to pay the student loan interest in the first place.
For more information about paying back your student loans, read Student Loan Repayment and/or contact your school or student loan servicer.