If you’re already repaying your student loans or about to begin making payments for the first time, it’s easy to get intimidated. Although you have lots of options to consider, there’s no reason to be alarmed. In just a few minutes, you can get a good handle on your student loans and who knows, you may even save yourself some time and money in the long run.
Here are some things you should know about your student loans.
You can save money by signing up for direct debit
Not only is signing up to make automatic student loan payments directly from your bank account convenient, but it can also save you money. You’ll shave 0.25% off your interest rate when you sign up for direct debit for your federal student loans.
Your job may come with loan forgiveness
If you have a career in public service, you may eventually qualify to have the balance of your debt wiped out. People who work full-time for government and non-profit organizations and make 120 on-time payments on their federal student loans will have the remaining balance of their loans forgiven. One catch: private student loans aren’t eligible for forgiveness under this program.
You don’t have to start paying back your student loans right away
You get a six-month grace period after you graduate before you have to start repaying your federal student loan. Perkins Loans come with a nine-month grace period. Other loans may also come with a time gap before you need to start paying them back. You should contact your lender to find out when you need to begin repayment.
Consolidating your debt may make your life easier
Bundling all your student loan debt together into one single monthly payment can make it easier to manage and may save you money. For one, consolidating may allow you to lock in a lower interest rate. You’ll also streamline payments, which reduces the risk of missing a bill and getting hit with a late fee. Consolidated federal loans also come with a variety of repayment options, like income-based repayment.
Consolidation does have some drawbacks. Any special perks on an old loan (like flexible repayment plans or bonuses for paying on time) will disappear. And if you opt for an extended repayment plan, you may end up paying more in the long run. Also, you can’t combine federal students loans and private student loans into a single consolidated loan. They must be kept separate.
If you end up having trouble making your student loan payments on time every month, you may be able to get help. Federal student loans come with different repayment options, like extended and income-contingent plans, that allow you to better match your monthly payment to your budget. Be aware, though, that any plan that lowers you monthly payment also means you’ll probably end up paying more in interest over the long term.
People who are temporarily unable to make payments because of a job loss may qualify for a forbearance, which temporarily halts your payments while you get back on your feet. Interest continues to accrue while your loans are in forbearance, which is not ideal. But it’s a better option than simply not paying the bill, which can eventually lead to wage garnishments and trashed credit.
When to start making payments
You don’t have to begin repaying most federal student loans until after you leave college or drop below half-time enrollment. Many federal student loans will even have a grace period. The grace period gives you time to get financially settled and to select your repayment plan. Note that for most loans, interest will accrue during your grace period. If you are able, you might want to consider making interest payments during your grace period so your principal balance doesn’t increase.
Your loan servicer or lender will provide you with a loan repayment schedule that states when your first payment is due, the number and frequency of payments, and the amount of each payment.
Things You Must Know About Repaying Your Student LoansWho to pay
You will make your federal student loan payments to your loan servicer*, not the U.S. Department of Education (ED) directly. ED uses several loan servicers to handle the billing and other services on federal student loans. Your loan servicer can work with you to choose a repayment plan and can answer any questions you have about your federal student loans. It’s important to maintain contact with your loan servicer and keep your servicer informed of any changes to your mailing address, e-mail, or phone number so they know where to send correspondence and how to contact you.
How to Make Your Payments
There are several ways you can submit payments to your loan servicer, including options to submit your payment online through your loan servicer’s website.
TIP: Your servicer may offer the option to have your payments automatically withdrawn from your bank account each month. You may want to consider this option so you don’t forget to make your payments. And if you choose to enroll in automatic debit, you may even qualify for a special interest rate reduction.
How much to pay
Your bill will tell you how much to pay. Your payment (usually made monthly) depends on
- the type of loan you received,
- how much money you borrowed,
- the interest rate on your loan, and
- the repayment plan you choose.
What could happen if you don’t make your payments
Not making your student loan payments is a big deal. It can result in default, which negatively impacts your credit score, and may affect your ability to borrow for things like buying a car or purchasing a home. Your tax refunds may also be withheld and applied to your outstanding student loan debt. There is never a reason to default. The Department of Education offers several options to ensure that you can successfully manage your student loans. If you’re feeling overwhelmed or having difficulty making payments, contact your loan servicer for help.
What to do if you can’t make your payment
Contact your loan servicer as soon as possible if you are confused or can’t afford your monthly payment. You do have options to lower your payment, such as changing your repayment plan to one that will allow you to have a longer repayment period or to one that is based on your income. If switching repayment plans isn’t a good option for you, ask your loan servicer about loan consolidation or postponing your payments.
Note: Several third-party companies offer student loan assistance for a fee. Most of these services can be obtained for free from your loan servicer.