Recent graduates will soon have to be faced with their student loan balances and the responsibility of determining a plan for repaying their debt. If you're wondering how you should go about paying back your student loans, here are six effective student loan tips and guidelines to follow to simplify the process.
Review the Type of Loans You Have
Before you start repaying your loans, check to confirm which type of loans you have and what the terms are. You can see your Federal loans by visiting the National Student Loan Data System (NSLDS) to see what loans you have.
For private loans, there is no central database to help locate the loans, but you can contact your lender to inquire about your loans. Most private loans may also have a disclosure statement similar to what can be seen on a car or mortgage loan. To be completely sure, you can check your credit report to see if your student loans are listed under a federal loan program like Stafford, PLUS, Perkins, etc., or a private lender like a bank.
Determine What Your Interest Rates Are
Your interest rates will play a big role in the repayment process and since interest is usually accrued daily on your loans either right after you take them out or after you graduate, it's best to know which loans are costing you the most money due to the interest being accrued.
To figure out your interest rate, you can either call your loan servicer, look at your account online or check statements that you receive in the mail. You may have various different interest rates for different loans. With federal loans, the interest is fixed for all students during the specific year while interest rates for private loans depend heavily on your credit.
To save money on interest when paying back your loans, you should try to pay back the largest loan with the highest interest rate first.
Find Out if You Have a Grace Period and Determine How You Want to Use It
All federal loans and only some private loans have a grade period right after you graduate or stop attending school and it usually lasts around six months. During that six months, you aren't required to make payments on your student loan but you can if you want to.
You can make the most out of your grace period by using the time to search for a new job, reviewing your student loan repayment options and making payments on the interest accrued by your loans if you can afford to do so at the time.
Choose a Repayment Plan that Works Best for You
When it's time to decide how you will start repaying your student loans, don't be afraid to weigh your options. With federal loans, you have a variety of repayment plans to choose from including the following:
- Standard payment plan which is the simplest and faster way to pay back your loans.
- Graduated payment plans that allow your minimum monthly payment to increase over time with your income.
- Extended payment plan.
- Income-contingent repayment plan that lasts for 25 years.
You can learn more about federal loan repayment plan options in detail by visiting studentaid.edu.gov.
With private loans, your repayment options depend heavily on the lender. Typical repayment plans include:
- The standard plan that allows you to pay off your loans in the shortest amount of time while paying the least interest.
- A graduated plan that increases by 10 percent every two years.
- Select 2 Repayment Plans that allow you to make mostly interest-only payments during the first two years of repayment.
Always Make Payments on Time
Making payments on time helps maintain and improve your credit score, along with helping you get rid of your student loans quicker. According to MyFICO.com, making payments on time contributes to more than one-third of your FICO credit score, and payment history is of the highest weighted factors used in determining your credit score.
You can set up automatic withdrawals to help ensure you make your monthly loan payments on time. With federal loans, borrowers even receive a smaller interest rate decrease if they sign up for automatic withdrawals for their monthly loan payments.
Make Extra Payments on Your Loans
In addition to making your payments on time, you can also make extra payments and try to pay off your loans quicker than the term you were given. Ten years or more is a long time to be paying off student loans and you can save a lot of money in interest if you make extra payments to eliminate your loans once and for all.
Student loan interest rates tend to be lower than other types of debt, so if you have consumer debt or any other loans, you might want to pay those off first before accelerating student loan payments.
Learning more about your student loans in college and upon graduation will help you make an informed decision when it comes to choosing a repayment plan and paying the loans back on time. These six must-know student loan tips will help set you on the right path when it comes to eliminating your loans once and for all.