Graduating college is often viewed as a huge milestone. After studying and paying tuition for several years, recent college grads finally start to feel the freedom of pursuing their career 100 percent.
Once you start working more hours and the paychecks start flowing in, it can be tempting to purchase things you couldn't afford in college and allow lifestyle inflation to sink in.
If you took out student loans, paying them back should be a main priority after college. Being in debt can hold you back from pursuing other goals for your life and if you don't determine your student loan repayment options and take action, the interest on your loans can cause you to lose more money over time.
Before you start planning your post-college life and organizing your finances, it's important to understand your student loan repayment options and make repayment a priority.
Take Advantage of your Grace Period
Most graduates receive a grace period for their student loans right after graduation, which is a time period where you aren't required to make payments on your student loans. You grace period can depend on what kind of loans you have. For example, for direct subsidized and unsubsidized loans, you may receive a grace period of six months. However, your grace period may look different if you have private loans.
It's best to use your grace period wisely and not treat it like a free pass. Even though you aren't required to make payments on your student loans, they still may accumulate interest during this time.
You can start analyzing your financial situation, increasing your income, and learning more about your loan repayment options during this time. Some people even start making early payments on their loans during their grace period to keep the interest down. Grace periods are nice to have if you truly need them and allow you the time to develop a realistic game plan.
Explore Your Options
Contact your lender if they haven't already emailed you and see when your first payment will be due. Make sure you know what types of loans you have and how you plan to repay them.
If you have Federal loans, there are several repayment plans you can choose from. First, there's the standard plan that sets fixed payments for the term of your loan. The standard plan allows you to pay less interest over time.
The graduated plan starts off with low monthly payments and then increases about every two years. While this plan will prompt you to pay more interest over time, it may be ideal if you don't have a lot of money to put toward your student loans at first or still need to find a higher paying job.
For Federal loans, there is also an income-contingent plan for Direct Plus loans that calculates your monthly payments based on your adjusted gross income (plus your spouse's AGI if you are married).
The government provides extensive resources and tools for all of their student loan repayment options to help ensure that you can find and select the right repayment plan that works for you.
If you have private loans, you should still find a variety of flexible repayment options. Your options may be specific to your lender, so it's important to check with your lender and explain your needs and situation so you can be matched with the best repayment option.
What if You Can't Afford to Pay Back Your Loans?
Not everyone can afford to start repaying their loans after their grace period ends. In the case that you are experiencing a financial hardship or none of the student loan repayment options will work for your specific situation, don't ignore your student loans. Ignoring your loans and failing to communicate with your lender can result in your loans going into default along with all the consequences that accompany that action.
If you have Federal loans, you might want to look into refinancing them, consolidation or deferment. You can consolidate your private or Federal loans by grouping them together into one loan with a lower interest rate. This could make monthly payments less of a financial burden for you. To calculate your student loan refinance to determine if refinancing will help you save money, use LendingTree's student loan refinance calculator.
If you have Federal students loans, you can request to defer them, which includes postponing your student loan payments for an extended period of time. While deferment may serve as an extra grace period, you loans will still accumulate interest so you will most likely have to deal with a larger balance when it's time to start making payments again.
Commit to Paying in Full and On-time
Regardless of which repayment option you choose, commit to paying the full amount on your loans on time each month. You may even want to set up automatic withdrawals every 30 days to help ensure your payments are submitted on time. Some lenders will even slightly lower your interest rate if you opt to have your payments automatically withdrawn each month.
Paying your loans off on time will not only help you get rid of the debt, but it will also help improve your credit score and make it easier to achieve other financial goals.