The time has come. College grads are about to walk into the real world.
If you fall into this group, this also means it may be time to start paying back your student loans. According to Student Loan Hero, 71 percent of 2017 graduates carried student loan debt.
And, monthly student loan payments are typically between $200 to $300 a month. That’s a lot to swallow, especially if you won’t be earning much at your first job.
To help you tackle your student loan payments, it’s important that you first understand your repayment options, including the ins and outs of grace periods. Take a look at our primer on preparing to pay down your debt.
Understand your “grace period”
First things first: What is a grace period?
A grace period gives you a period of time after you graduate during which you do not need to make payments. When this timeframe ends, you’re on the hook to start making payments. If you don’t have a grace period, your payments start kicking in immediately.
“The first thing recent grads should do is see if they even have a grace period,” says Adam S. Minsky, an attorney specializing in helping student loan borrowers.
While most undergrad loans do have some sort of grace period, Minsky says the length of time can vary depending on the type of loan you received. For example, direct subsidized government loans have a grace period of six months, whereas The Federal Perkins Loan Program has a nine month grace period.
Got multiple student loans that you’re thinking of consolidating? If you really need a window of time to prepare become making payments, be aware that consolidating loans can make that grace period go away. Yet, there is a way around this caveat: make sure you put a grace period “delay” on your application. This will alert the servicer not to process the loan consolidation application until the end of your grace period, says Minsky.
Weigh your repayment options
Did you know that as a borrower you can choose different options for paying back your loans?
In the case of federal loans, you have seven different repayment options to choose from, depending on your eligibility. These repayment plans determine how much you pay, when you pay, and how long it will take you to completely pay off your loans.
Typically, if you do not request a repayment option, you’ll automatically be placed in the Standard Repayment plan. Under this plan, your monthly payments are fixed and spread out over 10 years. However, there are several other plans that may work better for you.
For example, you may qualify for an Income Driven Repayment Plan, whereby payments would comprise 10 percent of your discretionary income. In order to start the process and be considered, you must first fill out the application on the StudentAid.gov site. Another option is the Graduated Repayment Plan. For this option, your monthly payments start out on the low end and increase over time. Only certain types of federal loans are eligible for this plan. You can find out whether or not you are eligible by visiting StudentAid.gov. To figure out which repayment option is best for you, you can also run the numbers via calculators provided by StudentLoans.gov and StudentAid.ed.gov.
Some types of borrowers – particularly those with government jobs or those employed by a non-profit – can enroll in a repayment program under the Public Service Loan Forgiveness Program (PSLF). This program forgives the balance on Direct Loans after you make 120 qualifying payments.
The earlier you start making qualifying payments, the sooner you’ll reach the requirements needed for forgiveness. Just be aware: any payments you make during a grace period don’t count, so you’ll have to forgo the grace period by immediately enrolling in a repayment program, according to Minsky.
Start making payments ASAP
Let’s say you landed a job right out of college. If this is the case, you’ve got some money coming in and you may want to start paying back your student loans during your grace period.
“Since 2012, there’s no interest subsidy for most federal loans during the grace period, so you can save money long-term by paying something towards your student loans during this time,” says Minsky.
Even if you don’t have a full-time job lined up, you can still start paying back your loans immediately. Perhaps you can get a part-time job while you’re hunting for a job in your field. Or, you can start a side hustle and take advantage of the gig economy.
You can also sit down and create a budget incorporating your student loan payments.
As you can see, the more you understand your student loan repayment options, the better off you’ll be. So, make sure you educate yourself on the types of loans you have and your applicable grace periods. From there, you can create a plan to pay back your loans. Once you wrap your mind around this and budget for your payments, you can start saving for your other goals.