Forgive Steve Simon if he doesn’t get swept up in the excitement of the holiday season this year.
Simon already knows what he’s getting for Christmas.
“Another notice from Navient telling me that my grace period is over and my first student loan payment is due,” he said.
Similar notices will be competing for attention with Christmas cards in millions of mailboxes this holiday season.
There were three million college graduates in the class of 2014, 70 percent of whom left school with an average student loan debt of $33,000. Most went through graduation ceremonies in the late May-June time frame, which means their grace period – the six-month window during which they are not expected to make payments on that $33,000 debt – ends somewhere between Thanksgiving and Christmas.
“A lot happens in the six months after graduation,” Mark Kantrowitz, Senior Vice President and Publisher of Edvisors.com, told Debt.org. “You’ve got relocation expenses, furnishing a new apartment, buying business clothes, maybe a new car … just a lot of things that can put a real drain on your bank account.
“The fact that students have a loan payment coming due is probably the last thing on their minds.”
First Payment Crucial To Success
It needs to be the first. Research shows that 25 percent of the people who miss their first student loan repayment, eventually default and that can cause a lifetime of financial problems. The default has a severe negative impact on a person’s credit score, which is used for monumental financial milestones like buying a home or automobile or just getting a credit card in your name.
The more immediate effect of a bad credit score could be felt when leasing apartments, buying insurance or even looking for a job. Companies use the credit score to evaluate a person’s responsibility and could judge a low credit score as a sign of irresponsibility.
Kantrowitz, who is recognized as the leading expert on student financial aid in the United States, said the Class of 2014 can ease their holiday concerns by putting together a checklist of areas about student loan repayment that need attention.
- Make a list of all the lending institutions that service your student loans. Get their mailing address, website address and payment schedule.
- Make sure the lender has your current contact information: home address, email, phone number, etc.
- Put a reminder in your smart phone or computer calendar to alert you two weeks before the due dates on each loan.
- If you have multiple loan providers, consider loan consolidation to make payment easier.
- Auto debiting from a checking or savings account should be investigated. Some lenders will cut your interest rates by one-quarter of a percent if you set up auto pay.
- Look into alternative repayment plans like Income-based Repayment and Pay As You Earn to see if those forms of repayment make it easier on you.
“And don’t wait for a coupon book or a notice from the lender that a payment is due,” Kantrowitz said. “With federal loans, you are obligated to make the first payment on time, regardless of whether the paperwork finds you.”
Being Employed Reduces Stress
Simon, who borrowed $41,000 to get a degree in electrical engineering at the University of Florida, said he’s had it pretty easy compared to his classmates. The school wouldn’t let him graduate until he passed an online counseling course that goes over student responsibilities and he landed a job a month after graduation with a terrific starting salary.
He did incur some debt relocating to Atlanta to start work at Ciena, an engineering firm where he runs simulations and tests hardware designs. However, the fact that he actually had a job eliminated the financial panic some of his classmates endure.
“I was freaking out for three or four months before graduation because I didn’t have a job and I couldn’t figure out how I was going to make my loan payments,” he said. “Then I got a job and I calmed down considerably.
“I’m not going to run out and buy a new car or put a down payment on a house or anything like that, but I am comfortable enough to take care of my rent and make my loan payments. I guess I’m just lucky.”