After a few years of having your nose buried in textbooks, spending countless hours studying for final exams, and missing out on fun to finish homework, you’ve finally graduated with the degree you were working toward.
If you’re like most recent college graduates, you’ve also picked up a lot of student loan debt along the way. In fact, about three out of five college students have student loan debt at graduation, so you’re not the only person walking across the stage with thousands of dollars in debt on your back.
Three out of five college students have student loan debt at graduation.
Most students don’t think about their loan debt while they’re in school. Eventually, however, student loans need to be repaid, and not doing so can have catastrophic effects on much more than your credit rating. If you find yourself in default on your loans, you could see difficulty renting an apartment, buying a home, or even getting certain types of employment.
What is Student Loan Repayment?
Repayment begins at different times based on the type of loan you have. Federal loans generally go into repayment status after a six-month grace period that starts with you either graduating, dropping below half-time enrollment, or leaving school entirely. Private loans, however, may go immediately into repayment, much like a car loan, or may have a grace period.
Thankfully, student loans come with several different ways to repay, depending on the type of loan you have.
Federal Loan Repayment Options
While federal student loans currently have eight different repayment options, they fall into one of three basic types:
- Standard Repayment, with a 10-year term
- Graduated or extended plans that start lower and then increase every few years, with a 10 to 30-year term
- Income-based repayment plans
In the Standard Repayment Plan, you’ll make a fixed payment that doesn’t change during the term of your loan. It’s the cheapest plan in the long run because your loan will get paid off the fastest and you’ll pay the least amount of interest.
With Graduated or Extended plans, you’ll have a longer term and lower payments. Those payments may be fixed or might increase over time. You’ll pay more for these loans, but if you cannot afford the Standard Repayment Plan, they might be a better idea.
In Income-Driven Repayment Plans, the monthly payment amount is based upon how much you’re making every month. The payment is 10% of your discretionary income—the difference between your monthly income and 150% of the poverty line. Each year you need to update your employment and income to ensure that if anything has changed, your payment can be adjusted accordingly.
Federal loans also have forgiveness and cancellation programs; these are much harder to get into and have strict criteria. Most graduates won’t end up using them; it’s still, however, worth your time to check them out…just in case.
Private Student Loan Repayment Options
Private student loans are called such because they’re offered by private lenders and banks as opposed to being offered by the federal government. Because they come from for-profit businesses, the wide variety of repayment schedules and plans available with federal loans are not available for private ones.
Private loans may either require payments in school or they may not require repayment until six months after graduation like federal loans.
For the private lenders that have options other than the standard immediate repayment plan; they may allow for interest-only payments while you’re in school or a set amount per month, like $25. Each lender, however, has its own requirements and repayment plans.
If you find yourself already in a private loan that you’re either having problems repaying or simply need a different repayment plan, you could also look at consolidation or refinancing. While such options take away many of the perks with federal loans, in a private loan situation it’s sometimes the only way to get a more convenient or financially palatable payment schedule.
Graduating from college is an exciting time, full of possibilities—and hopefully, a new job that launches your career. It’s also, however, when you are setting yourself up with good financial practices, and getting started with your student loan repayment is one of the more important ways to do that.
If you’re unsure about how to proceed, talk to your servicer or lender. Make sure you understand what type of loan you have, and what’s available to you in terms of repayment options. The right setup for your student loan repayment can be one of the best financial decisions you make.
Author Jeff Gitlen is a Content Associate at LendEDU, a company dedicated to helping consumers with their personal finances. Want to learn more about them? You can find them here: LendEDU Facebook, LendEDU Crunchbase, LendEDU on TechCrunch.