What College Graduates Should Know About Student Loan Repayment
By Bruce McClary
If the results of the recent NFCC financial literacy online poll are any indicator, many college graduates will soon experience sleepless nights, as more than half of the respondents (53%) suggested that student loan debt repayment was causing them the most stress.
The best way to feel more confident about keeping your student debt under control is to have a specific plan. Part of the planning process involves learning about the debt and the options for making it work within a budget. To help graduates gain more control over their financial future and stay on track repaying their educational loans, the NFCC offers the following tips:
Track Grace Periods – Different loans have different grace periods. A grace period is how long you can wait after leaving school before you have to make your first payment. It is six months for federal Stafford loans, but nine months for federal Perkins loans. For federal PLUS loans, it depends on when they were issued. The grace periods for private student loans vary, so consult your paperwork or contact your lender to find out. Don’t miss your first payment!
Understand Your Loans – Use whatever time you have during your grace period to get to know the types of loans you have, keeping track of the lender, balance, and repayment status for each one. Every detail is important because it can play a role in determining how each loan is repaid, and what options might be available if you are ever at risk of falling behind. Start by visiting www.nslds.ed.gov to identify the details about the loan amounts, lender(s), and repayment status for all federal loans. If some loans aren’t listed, they’re probably private (non-federal) loans. For those, try to find a recent billing statement and/or the original paperwork. The school may be able to help if those records aren’t handy.
Plan For Repayment – When your federal loans come due, your loan payments will automatically be based on a standard 10-year repayment plan. If the standard payment is going to be hard for you to cover, there are other options, and you might be able to change plans down the line if you want or need to. Extending your repayment period beyond 10 years can lower your monthly payments, but you’ll end up paying more interest – often a lot more – over the life of the loan. Some important options for student loan borrowers are income-driven repayment plans such as Income-Based Repayment and Pay As You Earn which cap your monthly payments at a reasonable percentage of your income each year, and forgive any debt remaining after no more than 25 years (depending on the plan) of affordable payments. Forgiveness may be available after just 10 years of these payments for borrowers in the public and nonprofit sectors. To find out more about Income-Based Repayment and related programs and how they might work for you, visit www.IBRinfo.org.
Stay out of Trouble – Ignoring your student loans has serious consequences that can last a lifetime. Not paying can lead to delinquency and default. For federal loans, default kicks in after nine months of non-payment. When you default, your total loan balance becomes due, your credit score is ruined, the total amount you owe increases dramatically, and the government can garnish your wages and seize your tax refunds if you default on a federal loan. For private loans, default can happen much more quickly and can put anyone who co-signed for your loan at risk as well. Talk to your lender right away if you’re in danger of default.
The NFCC April poll question and results are as follows:
Among the financial challenges immediately following college graduation, which of the following is most stressful?
- Finding and maintaining a job 11%
- Making car payments 7%
- Controlling credit card debt 22%
- Paying for rent and other housing expenses 8%
- Student loan debt repayment 53%
Note: The NFCC’s April Financial Literacy Opinion Index was conducted via the homepage of the NFCC website (www.nfcc.org) from April 1 – 30, 2015, and was answered by 1,219 individuals.
Bruce McClary is Vice President of Public Relations & External Affairs with the National Foundation for Credit Counseling.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.
