Repaying Student Loans
Understanding the Student Loan
If you’ve graduated, left school or have had your enrollment drop below half-time, you’ll need to start thinking about repaying your federal student loans. Don’t worry, in most cases, you won’t have to start repayment right away.
But understanding the loan repayment process now can go a long way toward financial well-being in the future.
So, what types of loans do you have?
There are two main types of federal student loans: subsidized and unsubsidized. The main difference between subsidized and unsubsidized loans (besides interest rates) is that interest does not accrue on subsidized loans during periods of deferment, while it does accrue on unsubsidized loans.
If you have a direct subsidized or direct unsubsidized loan, you won’t have to start repayment for six months after leaving school. Other types of loans have different payment terms:
- The federal Perkins Loans won’t enter repayment status for 9 months.
- And, the PLUS loan won’t enter repayment until after the final disbursement.
Okay, so the time has come to pay your loans. But, you may be thinking, “I don’t know who to pay!” After all, you can’t just make the check out to Uncle Sam.
To find out who you should repay, you can visit the National Student Loan Data System. Here, you can look up information about your federal student loans.
You shouldn’t have to do too much hunting to find out who you should pay. Before your loan goes into repayment status, you’ll be contacted by your loan servicer who manages your loan and payments on behalf of the lender. So, whether you have loans from the Department of Education (like a direct loan) or from your school (like a Perkins loan), you’ll make payments through this servicer and they’ll be able to help you select the most appropriate repayment plan.
There are different types of repayment plans you can choose from depending on your loan type and amount borrowed. You may select a fixed monthly payment, but some people opt for a graduated repayment plan where monthly payments start low and increase every 2 years. If you think that you’re going to need more than 15 years to pay back your loans, you may be eligible for an extended repayment plan. Finally, another repayment option that can help you better manage your debt is an income-based repayment plan that ties your income with your payment amount.
You may be wondering, “What if I can’t make my payment?” The bad news is that having your student loans forgiven is as rare as finding a unicorn in the wild.
The good news is that most servicers are happy to help you make payments in a way that works for you. Depending on your income and employment status, you may be able to qualify for deferment or forbearance which could allow you to temporarily reduce or postpone your payment. Or, if you have multiple loans, you may be able to consolidate them into one with a lower interest rate and monthly payment.
Starting to make student loan payments can seem scary, but it doesn’t have to be. As with most financial topics, the key is to get educated and to keep the lines of communication open. If you run into trouble, don’t just skip a payment; contact your servicer. Your credit score— and your future financial self— will thank you.