How to Prepare for Federal Student Loan Repayment

Graduation is a time of celebration, new beginnings, and (unfortunately) student loan repayment. In this article, we cover everything you need to know about repayment, including how to prepare for it and ways you can ease the burden.

What You Need to Know About Entering Federal Student Loan Repayment

Learning your federal loan information is the first step to preparing for repayment. It’s important that you know what type of loan you have, when repayment becomes mandatory, and how much you owe.

For each of your federal loans, make note of:

• the total loan amount
• your interest rate
• the loan type (Direct Subsidized, Direct PLUS, etc.)
• your loan servicer (who manages the loan)
• your current repayment plan (we’ll explain more about this soon)

Completing mandatory Student Loan Exit Counseling will guide you through collecting your loan information and help you understand your repayment terms.

When repayment starts

Student loan repayment begins after you graduate, have a less-than-half time schedule, or leave your institution. However, when you’re expected to start making mandatory payments varies by loan type.

Most federal loans have a 6 month grace period, so if you graduate in May, mandatory repayment won’t start until November. Some federal loans have longer grace periods (like Perkins loans) or no grace period (like Parent PLUS loans) so make sure you know what kind of loan you have and when repayment starts.

Source: StudentAid.gov

You can also request to defer payments with your loan servicer, if needed.

How much to pay

Your monthly payments will depend on the loan amount and your repayment plan. Your loan servicer will provide you with a repayment schedule that states when the first payment is due, how frequently you need to make payments, and the amount of each payment.

For federal loans, you’ll automatically be put on a standard 10-year repayment plan unless you apply for an Income-Driven Repayment (IDR) plan. You can request a different repayment plan at any time.

Though a standard plan will result in higher monthly payments, you’ll pay them off faster (in 10 years) whereas IDR plans have lower payments with much longer payback periods (20-25 years).

If you have the average student debt of $38,375 with a 6% interest rate, paying off your loan in 10 years will save you $15,000 in interest and 10 years of payments compared to a 20-year IDR plan. However, the monthly payment on a 10-year standard plan will be much higher – which may not fit into your budget.

The right repayment plan for you will depend on your financial situation and the amount of monthly payment you can afford. You can compare federal repayment plans with StudentAid’s Loan Simulator tool.

Where to send payments

Though you can see your loan information through your studentaid.gov portal, you’ll need to log into your loan servicer to make payments.

If you haven’t logged in to your loan servicer before, now is a great time to create an account and make sure they have the correct contact information for you – you don’t want to miss any communication regarding your loan!

Three Ways to Ease Into Repayment

In addition to becoming familiar with your loan terms and choosing a repayment plan, your grace period is the perfect time to start easing into repayment. There are many ways you can make repayment easier and more manageable.

1. Create a budget

It’s important to assess your income and expenses when starting repayment. After all, you need to make sure you can afford to follow your repayment plan! There are many ways to create a budget – using a method like the 50-30-20 rule can be a good place to start.

2. Set up autopay

Staying on top of your payments keeps you out of delinquency (3 months without payment) and eventual default (9 months without payment). You want to avoid both of these as it can affect your credit and lead to wage garnishment. Setting up autopay ensures you never miss a monthly payment. However, make sure you understand the pitfalls to autopay before getting started.

3. Make early and extra payments

Making extra payments during your grace period (or while you’re still in school) will lower the amount of interest and help you pay down your loans faster. An easy way to do this is to use any monetary gifts from birthdays, holidays, or graduations to pay off debt. Better yet, give loved ones a way to send celebratory gifts directly toward your loans.

Three Long-Term Repayment Solutions

Repaying student loans is something you’ll be doing for a long time, typically 10 to 30 years. Starting out strong is important, but there are ways you can ease the burden long-term.

1. Apply for loan forgiveness

See if you qualify for loan forgiveness. Forgiveness programs are usually for specific borrowers and require a certain number of payments for part or all of the remaining balance to be forgiven. Two popular forgiveness programs are Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness (TLF)).

2. Refinance with a private lender

Consider loan refinancing with a private lender like Earnest. Refinancing may lead to more favorable terms for you, like lower interest rates with longer payback periods. However, you will lose out on federal loan options like forgiveness and IDR plans, so make sure to weigh the pros and cons before taking any major steps.

3. Seek employer assistance

Seek jobs with employer student loan repayment benefits to get help paying down federal or private loans. Seeking a job with this benefit or choosing to ask your employer for it can make a big difference in how quickly you pay off your loans. Plus, it has advantages for you both! Learn more about the benefits of employer student loan assistance before approaching your employer about it.

Take Repayment Into Your Hands

Beginning federal student loan repayment can be scary, but learning to manage your payments doesn’t have to be. Follow the advice in this article and you’ll be on your way to mastering your student loans and getting them paid off for good.