For those who have graduated from college recently, December’s nearing month comes with some harsh reality.
The federal student loans, which account for a significant percentage of student debt, have about six months of rest periods following graduation. After this, the borrowers must start making repayment for the loans.
For the graduates, this can only mean that they are now facing their first-ever bigger bill.
According to the latest report from the Institute for College Access & Success, seven in every ten college seniors graduate is projected to be owing about $30,000 per borrower. This amount is hefty for those just starting their lives after college.
For many borrowers, this is going to be a rude awakening.
About 64% of the students are responsible for repaying their student loans, according to this year’s report on How America Pays for College by Sallie Mae. What’s surprising is that not even half of this population has researched repayment methods.
If you happen to be one of the many locked in this situation, here are some things you need to do about it.
Today, many borrowers have different loans with different institutions, each with a different interest rate, monthly repayment dates, and periods. This can be confusing for any person.
Therefore, the first thing you do must be understanding the loans you’ve acquired.
It would help if you had a loan repayment plan, and the first step towards that is understanding who you owe; it could be the Department of Education or even a bank.
Afterward, find out what you owe the respective institutions- among them interest rates, any accrued interest, as well as the monthly due dates.
In a majority of the cases, you likely have a 10-year standard repayment plan. However, there are other options you can explore; they include paying as you earn, also known as income-based repayment. Feel free to find out from your lender the plan that suits you best.
After college, there’s always a chance that you have moved to a new address, possibly changed your email address, acquired a new phone number. All you need to do is ensuring that every one of your lenders can reach out to you.
As a borrower, it is your responsibility to ensure that all your contact information is accurate.
Take a record of all your income minus expenses; these must include your rent, other utilities, and every month’s loan tab; this will help determine whether you can afford your loan repayments.
Once you have predetermined your budget and set it well up, it becomes easy to understand what you can afford. Sometimes, to cut on your budget, you can consider having a room or even go back to your family home for a couple of months to make that little loan repayment.
To stay on top of your finances, consider using an app to track how you spend.
In cases where your budget feels stretched, consider income-based repayment programs. Such programs let you pay a small percentage of your income instead of a flat rate, provided you are under a specific income threshold. In general, it’s thought that everyone whose debt is higher than their annual discretionary income qualifies for this program.
If you are without a job and with negative cash flow, opt for a deferment or forbearance. With a deferment, you get to have your loan placed on hold for three years. It’s not the end if you don’t qualify for a deferment, as you can always apply for a forbearance, which suspends the payments for a year. However, here, interest will still accrue.
In either case above, borrowers must apply for a chance to have their payments postponed.
If you are confident that you can afford your repayments, feel free to sign up for autopay. This automatic payment program will help decrease any chances of skipping your payment and may time and again have an additional perk of a reasonable interest-rate deduction on your loan. This timely payment amount has several added advantages, like helping in building a favorable credit history.
Good credit history can make a big difference, especially when applying for other loans like a car loan, lease, credit card, mortgage, or even a job.
You might feel flushed with monetary gifts. Here’s what most grads overlook during their graduation. You can use this to beef up your first few payments.
It’s advisable that whenever you can, make more than the minimum payment every month. You’ll find yourself paying off your loan faster than you’d initially thought; besides, you’ll pay less interest. All you need to do is make sure extra payments go to the subsidized loans first, then the loans with the highest interest rate afterward.
Also, you need to specify that those extra funds are applied to the loan principal, not to the future interest payments.
Today, more and more employers offer student loan repayment options to their employees; this can help recent graduates pay their debt.
About 8% of companies, including Fidelity, Aetna, and PwC, now provide taxable contributions to repay student loans.
Therefore, if you are hunting for a job, stay keen on potential employers with student loan assistance programs.
The moment you have a steady job and have a credit history, feel free to consult with a financial adviser about possible options.
If you owe several different loans, you can opt to consolidate them. Alternatively, you could also decide to have your repayment terms beyond the usual ten years to reduce your monthly payments.
However, it would help if you weighed your options first. You can consolidate or refinance to a private loan that can always get the benefits from federal loans like the income-based repayment programs, loan forgiveness, and those who qualify.