Student Loan Payments: What You’ll Need to Know
When you take out student loans, chances are, you’re not planning on paying them back until after college.
But what do you do when the bills come due? If you aren’t prepared, you may find yourself asking “How do I pay my student loans?” But don’t feel too overwhelmed — there are many ways to handle student loan payments, including extending your grace period, making extra monthly payments (if you can afford it) and learning when it’s time to consolidate or refinance your loans.
As you get ready to begin repaying your student loans, here’s what you need to know about…
Making your first student loan payment: a checklist
Let’s go through a list of actions to take as you start repayment. Note that you wouldn’t do all of these things — some are mutually exclusive — but you’ll be well prepared if you’re at least aware of the following:
Find when your grace period ends
The good news is that, in many cases, you have a brief period of time before you have to start repaying your student debt. Known as a grace period, it gives you time to figure out your finances and set up a student loan payment plan that works for you.
The length of your grace period depends on the type of loan you have and your servicer. In general, federal student loans come with a six-month grace period, which starts from when you graduate, leave school or drop below half-time enrollment. Realize that interest accrues on unsubsidized loans during your grace period (though not on subsidized loans), as it does while you’re in school.
There are exceptions to the federal loan grace period. For example, PLUS loans enter repayment as soon as they are disbursed, so as a result, you may need to defer your payments if you aren’t prepared to begin.
However, if you’re a graduate or professional student, you will be enrolled (automatically) into a six-month deferment from your PLUS loans after graduation, or if you drop below half-time enrollment or leave school. Your loan servicer can provide you with information on deferring your PLUS loan payments.
Another exception is the Federal Perkins Loan. Even though that program is discontinued for the time being, you might still have a loan from earlier semesters. The school where you received the loan, or your current servicer, can help you determine your grace period.
Finally, if you have private loans, you’ll need to check with your servicer to find out if there’s a grace period for those. Some private lenders, like Citizens Bank, offer a six-month grace period if you defer your payments on the loans until after graduation, while others expect you to begin paying as soon as you finish school. Further, some lenders may require repayment while you attend school, so you might need to ask for a deferment if you want to wait until graduation.
|Changing your grace period|
|There are situations that can impact the length of your federal student loan grace period. Below are three circumstances that can result in changes for government student debt. (For private student loans, the policy will vary, so check with your lender.)
Find your student loan servicer
You can’t make a payment if you don’t know where to send the money. The federal government uses other institutions, called servicers, to manage your loan payments. In most cases, your loan servicer should contact you directly, letting you know when your first payment is due and how much you owe.
However, if you’ve applied for federal aid, your first stop online should be the U.S. Department of Education’s Federal Student Aid portal — there you can log in and learn how to pay for your loans. Make sure to sign up for a Federal Student AID ID and use it to look up your student loan information.
That said, note that a change to the line-up of student loan servicers is in the works, so your servicer may change in the near future.
Do you already know the name of your servicer, but aren’t sure how to contact them? Use this list below, provided by the Department of Education to find the contact information for your federal loan servicer.
For private student loans, you’ll need to check through your mail or email correspondence to see who is servicing your loans (if it’s not the lender itself). If you’re unsure of what private loans you’ve borrowed, you can look them up via your free credit report.
Try to keep information on your loan servicer in an easy-to-find place so you can access it quickly when needed. Many private lenders offer access to your loans and loan payment schedule via a password and ID on their website, too.
Consider setting up a new repayment plan
If you’re among the majority of student loan borrowers with federal student debt, there are ways to limit your monthly payment — in some cases down to $0 — via income-driven repayment (IDR).
These payment programs cap your monthly bill to a set proportion of your discretionary income. And even better, once the loan term ends, anything you still owe is often forgiven. You can check out our guide to IDR for more information, and your loan servicer should also be able to answer your questions.
And if you don’t need an IDR plan but want to adjust the length (term) of your loan, you can look into extended and graduated repayment plans.
Consider consolidating your student loans
Student loan payment often seems like too much because you may need to make more than one payment each month. Because of how student loans are disbursed, each year is considered a separate loan with a separate payment.
Depending on your situation, it’s possible to simplify matters through federal student loan consolidation. With this process, your loans are grouped together in a way that allows you to make only one payment each month. You can start the federal loan consolidation process by going to the Federal Student Aid website.
Because you could end up giving up the remainder of your grace period, it may make sense to apply for consolidation toward the end of your six months. Carefully review your options to decide if consolidation is the right move for you — you may even consider consulting with a financial professional.
Look into refinancing your student loans
Borrowers can consolidate private and federal student loans through refinancing. In some cases, this could lead to a lower interest rate, which in turn could save you money overall. Good credit is required for refinancing your student loans, so make sure your score is 670 or above. If you have multiple private student loans from different lenders, refinancing with one lender can help you get on top of the payments. It’s often easier to keep track if you only need to make one payment and only have one interest rate.
Caution: What to know before refinancing a federal student loan
Before you decide to refinance federal loans, you should consider what you can lose as a result: Namely, your access to federal benefits like IDR and Public Service Loan Forgiveness (PSLF). Refinancing makes federal loans private, and once a refinance is done, that’s the end of your federal loan options.
Weigh the benefits of a lower interest rate against the possibility that you might need income-driven repayment, PSLF or any other federal benefits later on. If you’re worried about losing access to those options, then you’ll probably want to stick with federal loan consolidation.
Deciding to refinance or consolidate during your grace period can make a lot of sense, since it sets you up to have a repayment plan in place before your first payment is due. Use your grace period to research your options and decide what could work best for you.
Set up your payment process
Now it’s time to set up your student loan payment process. If you still use checks, find out the payment address by contacting your servicer. However, chances are you may prefer to make things easy by using automatic payments.
When you receive the information from your servicer, look for directions on setting up your account for online management. You should be able to receive your statement electronically and make payments online.
Many servicers allow you to pay through their websites, or set up autopay so the money is automatically deducted from your bank account each month. In fact, many lenders offer a discount if you sign up for autopay. The discount is typically a quarter of a percentage point, and while this might not seem like huge savings, every little bit can help you pay less overall on your student loans.
If you decide to set up automatic payments through your bank or credit union, you’ll need information about your loan servicer, including the name and address, as well as your account number.
Once this information is in your financial institution’s system, you can go in once a month to pay your bill, or have your bank or credit union pay it automatically.
That said, if you elect to use autopay, be sure you’ll have enough in your account each month to cover the payment. Otherwise, you could suffer overdraft fees and hits to your credit score.
How student loan payments are applied
Now that you’ve made your first student loan payment, it’s a good idea to understand how your payments are applied.
First of all, if you’re in good standing, your payment goes first to the monthly interest and second toward paying down your principal. Say you have a monthly payment of $452, and your interest each month is $25. That $25 goes directly to your loan servicer, while the remaining $427 goes toward reducing your principal.
If, however, you owe fees due to late or missed payments, those are often applied even before the interest. So if you fall behind on your debt, even less of your monthly payment will go toward principal reduction. Using the example above, if your late fees and previously accrued interest add up to $250, that will come out of your payment first. Your monthly interest is then taken out of the remaining $202, leaving only $177 to reduce your principal.
Note that with IDR plans, the amount of interest that has accrued on your loan(s) may be more than your monthly payment. Per the conditions of your plan, the unpaid interest that isn’t covered gets capitalized — added to the principal balance.
However, for all plans except for Income-Contingent Repayment (ICR), the government covers some, if not all, of your remaining unpaid accrued interest. Consult your loan documents and the Federal Student Aid IDR question page to see how this subsidy would work for your specific IDR plan.
Student loan servicers automatically apply anything extra you put toward student loans to future payments. So if you decide you want to pay an extra $100 each month, it’s not going to automatically reduce your principal; you’ll instead have to ask that it be used towards your principal.
You can save money on interest and pay off your loan faster by putting extra money toward your principal payment each month. However, when you do this, you need to do it right. One of the best ways to ensure extra money goes toward actually reducing the principal on your debt is to contact your loan servicer and specify that your additional payment shouldn’t be used for future payments.
What happens when you miss a student loan payment?
Life happens, and sometimes you just aren’t able to meet your debt obligation. Unfortunately, missing a student loan payment makes your account delinquent and can result in a lower credit score — and your student loans can go into default if you fall too far behind.
Ending up in default not only impacts your credit score, but it can also reduce your access to federal programs like PSLF and FHA mortgage loans. Wage garnishment and tax return refund withholding are two other potential consequences of federal student loan default — plus private lenders can also sue for wage garnishment.
How to avoid student loan default
If you end up in a situation where you can’t make your student loan payments, contact your federal loan servicer as quickly as possible to discuss these options:
- Deferment, which allows you to delay making payments for up to three years. You can extend your deferment if needed, up to the maximum time allowed. Your interest stops accruing on subsidized loans during deferment but continues accruing on unsubsidized loans.
- Forbearance, which can be an option if you don’t qualify for deferment, allows you to put off making payments for up to 12 months at a time, with a limit of three years in total. Interest accrues on all federal loans, except for Perkins loans, during forbearance.
- Income-driven repayment (IDR), as mentioned above, can help you reduce payment amounts so that they’re affordable. If you have a lower income, IDR can provide you with a way to continue making payments without breaking your budget. Before contacting your servicer, check out our guide to picking an IDR, so you’re educated about which plan might work best for you. Our handy calculator can also help you identify a plan likely to fit your needs.
If you have private student loans, you should get in touch with your servicer right away to look into possible solutions. Some private lenders and servicers offer hardship relief and payment plans that can help you find a more manageable payment while you work on your financial situation.
What if you’re already in default?
If you’re already in default, it’s important to contact your servicer to work on a solution. You aren’t eligible for IDR until your federal student loans are current, but your servicer can help you create a payment plan to catch up on your loan and regain good standing. When your loans are current, ask your servicer about IDR and other affordable payment options.
How to report a problem with your servicer
Complaints about student loan servicers are on the rise. Concerns about how payments are credited, as well as lack of information about federal programs and resources, are among the issues borrowers have expressed.
If you feel like your servicer is treating you unfairly, file complaints with the Consumer Financial Protection Bureau (CFPB) and the Department of Education. It’s also possible to contact a student loan ombudsman to help you resolve problems with servicers.
In the end, understanding the student loan payment process can help you be a better advocate for yourself and stay on top of the situation.
Tips for repaying your student loans quickly
Need some more advice on how to repay your student loans quickly? Here are five suggestions below for fast-tracking your loans.
- Make extra payments with money from a side hustle
- Make biweekly payments to your student loans
- Refinance your student loans (use our student loan refinancing calculator to find out what you could save)
- Consider a student loan forgiveness program
- Double down on your loan payments