Few things are more exhilarating than receiving a college diploma. Too bad it’s so closely followed by something else: your student loan bill.
Seven in 10 seniors graduate with debt, owing about $29,000 per borrower, according to the most recent data from the Institute for College Access & Success.
For this year’s graduates, especially those who don’t even have a job yet, there are just a few months of freedom before the repayment process begins.
Beginning a career with such a hefty debt load may seem overwhelming. Many grads said they don’t even know what they owe on their student loans, what interest rate they are paying or whether college was even worth it, according to a recent survey by CitizensBank.
On the upside, for federal loans at least, which make up the bulk of student debt, there is usually a six-to-eight-month grace period before the first payment is due. Private loans can start even sooner or immediately. That makes this the best time for graduates to “get their ducks in a row,” said Andrew Josuweit, CEO and president of Student Loan Hero, a student-loan management site.
Here’s where to start:
Step 1: Know your loans
Many student borrowers have several loans, each potentially with a different interest rate, monthly due date and repayment period.
Once you’ve graduated, go to the Department of Education’s centraldatabase for student aid to get a handle on repayment options and terms for federal student loans. Sites like Student Loan Hero can also provide a dashboard-type overview for borrowers. David Weliver, founder of the site Money Under 30, suggests creating a simple spreadsheet to keep track.
Step 2: Update your contact information
Chances are you’ve moved, changed your email address and have a new cellphone since graduation. Make sure each lender has a current way to reach you. “It’s easy for a loan servicer to lose track of you and if you’re not getting statements you could go into default by accident,” Josuweit said.
Step 3: Check your cash flow
Take your income minus expenses, including your rent and monthly loan tab, to determine if you can afford your loan payments.
If you can’t, look into federal income-based repayment programs, which allow you to pay a percentage of your income rather than a flat rate, as long as you are under a certain income threshold. Generally, you’ll qualify if your federal student-loan debt is higher than your annual discretionary income, according to the Education Department.
If you don’t have a job, or are going back to school to pursue a graduate degree, consider a deferment or forbearance. A deferment lets you put your loan on hold for up to three years. If you don’t qualify for a deferment, forbearance lets you temporarily suspend payments for up to one year. However, in this case, interest will still accrue.
In each case, borrowers must apply for permission to postpone their payments. With private lenders, there is some flexibility but also subjectivity, Weliver said.
“Check with each lender to ask if they will work with you,” he said.
Step 4: Register for autopay
If you can afford your payments, sign up for autopay. An automatic repayment program will decrease your chances of missing a payment and may come with the added perk of an interest-rate deduction on your loan.
Step 5: See if your employer will chip in
If you do have a job, or are in the process of landing one, you may qualify for an employer-sponsored loan repayment program. A few companies that recruit heavily on college campuses, including PwC, EY (formerly Ernst & Young) and Fidelity, have recently rolled out repayment packages to appeal to new grads.
step 6: Consider consolidating or refinancing
Once you have a steady job, a salary and a credit history, call a few lenders or talk to a financial advisor about your options. If you have several different loans, you might consider consolidating them or you may be able to refinance at a lower interest rate or you could choose to extend the terms beyond the standard 10 years to lower your monthly payments, Josuweit said.
But weigh the options first, he cautioned. Consolidating or refinancing to a private loan will forgo the safety nets that come with a federal loan, including income-based repayment programs and loan forgiveness, for those who would qualify. Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.
But first things first, Weliver said. For those just hanging up their cap and gown, don’t get hung up by the various loan options down the road.
“Focus on finding a job and setting up a life,” he said.