How to Pay Back Student Loans

You just graduated college and you want to know, now what? First, congratulate yourself for making it this far. Next, start thinking about how you’ll repay your student loans. Make sure you know who your loan-holder is, where to send payments and how much to pay. You may also have questions about discharging your loans or the consequences of missed payments. Get answers to your concerns before you fall behind, and get out of debt as quickly as possible.

When must I begin repaying my student loans? Do I have a grace period?

Most student loans have a six-month grace period, which means you won’t have to make payments until six months after you graduate, drop out or drop below half-time status. The grace period is meant to give you a chance to find a job and begin earning an income before you’re swamped with bills.

The following types of loans have six-month grace periods:
  • Direct Subsidized/Unsubsidized Loans
  • Subsidized/Unsubsidized Federal Stafford Loans
  • Some private student loans

PLUS loans have no grace period, and you must begin repaying them as soon as they are fully disbursed.

The grace period on Federal Perkins loans depends on the school that gave you the loan. If you have this type of loan, check with your school to find out when you must begin repayment.

The grace period on a private student loan depends on the lender and your loan contract. Most private student loans have a short grace period, but you must check with your lender to make sure.

You may also choose to consolidate your student loans during the grace period. This will group your federal student loans into one payment.

How much do I pay each month? Can I pay more?

Your minimum monthly payment is based on the type of loan, the amount you owe, the length of your repayment plan and your interest rate. You’ll typically have 10 to 25 years to repay federal loans entirely. Shorter lengths of time or larger loans will result in higher monthly payments.

If you wish, you can pay any amount more than the minimum payment each month. There are no penalties for early repayment, and taking this approach can save you a significant amount of interest over time.

How do I make payments?

Once bills are due, you’ll be responsible for sending your monthly payments to the proper loan servicers, which are the companies that hold your loans. If you don’t know where to send payment, check with your school’s financial aid office. The financial aid office will be able to tell you who your loan servicers are. You can then contact your loan servicers directly with specific questions.

You can also retrieve loan information via the National Student Loan Data System.

Be aware that your payments are due even if you don’t receive the bills. If you move after graduation, tell your loan servicer your new address to ensure that you receive bills and can stay on top of your payments.

What are my options when I’m having trouble meeting minimum loan payments?

If your monthly required payment is more than your income allows you to pay, you may be eligible for income-based repayment (IBR). An IBR plan is based on your income rather than the amount you owe, thereby lowering payment requirements for low-income borrowers.

If you expect your financial difficulty to be short term, such as if you are in between jobs or are on medical leave, you can temporarily suspend payments on federal student loans. However, your loans will continue to accrue interest, meaning they’ll be a bit more expensive overall.

You may also be able to extend the time you have to repay federal loans by using an extended repayment plan.

Or, if you expect your earning power to increase significantly over the years, you can opt for a graduated repayment plan. This allows you to pay less at first, with monthly payments increasing over time.

Student Loan Debt?

You can consolidate your loans or get your loans forgiven.

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What are the consequences of missed payments? Defaulting?

Student loans never simply disappear. There’s no statute of limitations, and student loans are rarely discharged even in bankruptcy. With few exceptions, your student loans will follow you through life.

If you make a late payment on a federal student loan, you may be responsible for a late fee of 6 percent of the payment.

Defaulting on federal student loans will result in more severe penalties. The government can garnish up to 15 percent of your wages and Social Security benefits, as well as offset income tax refunds. The government may also deduct 25 percent of each payment for collection fees, making the loan cost significantly more.

Late or missed payments will also show up on your credit report and can harm your score.

If you cannot afford your payments, it is much better to contact your loan servicer and review your repayment options rather than simply not paying.

Can I cancel my student loans?

Federal student loans may be canceled under the following circumstances:
  • Your college closed down while you were a student there or within 90 days after you withdrew.
  • Your school owed you or your lender a refund after you withdrew but never provided it.
  • The loan was a result of identity theft.
  • The student borrower dies.
  • You become totally and permanently disabled.

Can my loans be forgiven?

Federal student loans may be eligible for certain forgiveness programs depending on your profession.

If you have an IBR plan, any balance remaining after 10 years will be forgiven if you spend those years in a public service sector such as the military, public education or police work.

You can have up to $17,500 in loans forgiven if you teach in a low-income area for five years.

If you ever find yourself struggling with student loans, keep in mind that you always have options. Don’t wait until you’ve missed several payments or have already defaulted on your loans; get help as soon as possible to create a plan that works for you and your budget.

Cecillia Barr

Cecillia Barr is a graduate of the University of Central Florida. She blogs about her extensive knowledge on student loans in order to help others reduce their debt and live financially independent lives.

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