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The average borrower repaying student loans needs to send in about $200-$300 every month, recent data shows.
You might be wondering how to pay that amount on an entry-level salary — or no salary at all. After all, as a new graduate, you might be seeking your first real steady income.
Fortunately, our seven-step checklist below will prep you for your payment, whatever the amount. Take a look to see what to expect as you begin paying back student loans — you can even print out a PDF version of the checklist here if you want to use it to chart your progress.
|1.Complete exit counseling||Federal student loan borrowers are required to take an online course on repayment before graduation. If you have private loans, however, the onus falls on you to study up.|
|2.Make the most of your grace period||Know the grace-period length for each of your student loans. Also, learn how much you owe and to which student loan servicers.|
|3.Review your repayment (and contingency) plan||You might be stuck with your repayment plan for private student loans. But with federal loans, you could sign up for a repayment plan that limits your payments to a set percentage of your disposable income, if you meet certain criteria.|
|4.Budget for loan payments||Whether you’re employed or still looking for work, figure out how your loan payments will fit in with your other postgraduate expenses.|
|5.Set up autopay||Sign up for automatic payments to score a reduction on your loans’ interest rates.|
|6.Track your credit score||Locate your credit score for free online. Start tracking its progress as you improve your debt-to-income ratio.|
|7.Set a goal for your last payment||Once you complete the first six steps of our checklist, you’re ready to set a long-term road map for paying off your education debt.|
1. Complete exit counseling
When you graduate or leave school, you must complete exit counseling for your federal student loans.
Using your Federal Student Aid ID, you can probably complete the counseling in 20 to 30 minutes at StudentLoans.gov.
The counseling might seem as dull as taking a defensive driving course online, especially if it goes over what you already learned as a freshman when you went through entrance counseling. Still, exit counseling is important because it will review the following:
If you’re solely a private student loan borrower, there’s no requirement to undergo postgraduate counseling. But if you want to understand the rules of your repayment, contact your lender and ask about:
- Your interest rate and estimated monthly payment
- Your first payment due date
- Your postgraduate grace period
2. Make the most of your grace period
As exit counseling covers, most federal student loans come with a grace period. With federal loans, you have six months from the date you leave school before your first payment kicks in, and many top private student loan companies also offer their borrowers this benefit.
No matter how much time you have left, make the most of your grace period by:
- Finding your servicer: Federal student loan borrowers can go to the National Student Loan Data System to find their servicer, though the way repayment is made could eventually change if plans for a new federal loan servicing platform, known as “NextGen,” are enacted.
- Creating an account with your servicer: Learn exactly how much you owe and what interest rates your loans have. Unless you only took out Direct Subsidized loans, your student debt likely accrued interest while you were busy going to class.
- Talking with your servicer: Open up lines of communication by asking about your repayment plan options and first payment due date. If you have multiple servicers, track them down and speak with each of them.
3. Review your repayment — and contingency — plan
If you have multiple federal student loans, you might find it difficult to repay them on the 10-year Standard Repayment Plan you initially received.
You could opt to lower your monthly payment by switching to income-driven repayment. Under this type of plan, your payment amount would fluctuate annually, depending on how your income changes. If you go this route, you’ll need to recertify your income annually.
Say you switch to an Income-Based Repayment (IBR) plan — it could limit your monthly payment to around 10% of your discretionary income, but it would also increase how much interest you’d pay over time.
For example, if you’re making $25,000, but your loan debt is $30,000 with a 5.70% interest rate, moving to an IBR plan could shrink your monthly payment from $328 to just $86. However, you’d pay an additional $15,912 (approx.) over your 25-year repayment term before qualifying for loan forgiveness, according to our IBR calculator.
If you have multiple federal loans with different servicers, you could also explore a Direct Consolidation Loan. It groups your federal loans into one new loan, although unlike student loan refinancing, won’t decrease your overall interest rate.
Before switching repayment plans or consolidating your federal loans, understand that the following could change:
- Monthly payment
- Repayment term
- Interest owed
- Student loan forgiveness eligibility
Use the Repayment Estimator tool from the Department of Education to choose the best plan for you. Enter your loan information into the tool, and it’ll show what your repayment would look like under each plan.
For private loans, you’re likely stuck with the repayment plan you selected when you first took out your loan. You could always consolidate and refinance your private loans — ideally, at a lower interest rate — but let’s not get ahead of ourselves.
4. Budget for paying back student loans
Even if you switch to an income-driven repayment plan, you’d still need to get a handle on the dollar amount of your monthly payment.
Make it a line item on a budget of expenses, which could also include groceries, rent, transportation and routine bills, such as for your internet provider.
Now, calculate your monthly income. If your first job out of college pays you every two weeks, multiply the after-tax amount by two. If that amount is larger than the total for your monthly budget — leaving you with some savings, even after providing yourself an emergency-fund cushion — then consider increasing your loan payment and getting out of debt more quickly.
But if your expenses outpace your income, you might have to make some sacrifices. If you drive to work, for example, you could replace your car with public transportation. Taking on a side hustle could also help bring in some cash.
Still falling short of your monthly dues? It could become time to explore your repayment postponement options. Although some private lenders offer limited forms of economic hardship forbearance, federal loan servicers provide a wide variety of deferment and forbearance options.
For instance, you could pause your federal loan repayment for up to three years if you’re unemployed and can’t find work. Just keep in mind that your balance will accrue interest until you resume repayment.
5. Set up autopay
Whether you’re working with a federal loan servicer or a private lender, you have the option of setting up automatic student loan payments from your bank account.
Once you supply your bank account information, your servicer will charge that account for the amount you set. It’s the most straightforward of ways to make your first payment.
Although it won’t feel great to have your servicer dipping into your bank account, it will ensure you never miss a payment. You’ll just need to make sure you have enough cash in your bank account every month to cover the payment.
The other benefit of autopay is that many lenders, including the Department of Education and its servicers, offer a 0.25% interest rate reduction when you enroll.
If your budget leaves you little margin for error, you might opt to pay your servicer each month manually. In this case, you can avoid a late payment by setting a reminder for yourself, maybe by using a mobile app like Google Calendar.
6. Track your credit score
Even before you make your first loan payment, find your free credit score online. Once you start making timely loan payments, you should see your credit improve. Chipping away at your debt makes up to 35% of your credit score, according to FICO.
If you improve your score significantly, you also open the door to refinancing your student loans. Student loan refinancing companies help creditworthy borrowers consolidate their older loans into one new loan. Unlike with a Direct Consolidation loan, you could receive a lower interest rate by refinancing.
Many lenders require a potential refinancing borrower or their cosigner to have a minimum credit score of 650 to 700. But you or your cosigner will need an even higher score if you hope to be quoted an especially low rate.
Before you refinance, though, be sure you’re not planning to use exclusive federal loan borrower protections, such as income-driven repayment or certain forgiveness programs. You’ll lose access to these once you refinance with a private loan.
But if you do feel good about your ability to repay your loans and want to go for a lower rate that could save you a large sum of money (you can estimate how much with our refinancing calculator), refinancing could be a great move — just don’t forget to shop around for the best rate.
7. Set a goal for your last payment
Letting autopay run its course will keep you on track with making monthly loan payments. But to truly rid yourself of education debt on your own terms, stay on top of your finances.
Say you earn a raise at work, get a significant tax return or receive an inheritance. You could adjust your budget to increase your monthly loan payment, bringing you closer to being debt-free.
You might even set a goal for the date of your last payment. Tying your goal to your age — being debt-free before turning 35, for example — is one popular plan of attack. If that piques your interest, select the “Pay off by” function of our prepayment calculator.