Managing student loans after graduation can be a challenge. There is typically a grace period of six months after graduation before you have to start paying. If you graduated in May this year, that means you’ll have to repaying your student loans in November. Have you factored this into your budget yet? Here are some of our credit counseling tips on managing student loans!
Familiarize yourself with the details of your loans.
The first step to managing your student loans is knowing what they actually entail. If you took out student loans when you were just starting college, it’s been a few years now since you had to think about those loans. You might not remember all the details of your loans now. You may not have even fully understood them at the time, but you definitely need to understand them now. Familiarize yourself with the loan details, like its interest rate and minimum payment. If you have any questions, don’t be afraid to call your lender and ask.
Understand your repayment options.
There are several different option available for repaying your student loans. Knowing your options can help you in better managing your student loans. For Direct Loans and Federal Family Education Loans (FFEL), you have the following options:
Standard Repayment Plan
Payments are fixed, with at least $50 per month, up to 10 years. Under the Standard Repayment Plan, less interest is paid over time.
Graduated Repayment Plan
Payments are not fixed, and start at a lower number at first. Then, every two years, the payment (which is calculated based on the amount of your initial loan) increases. Over time, you will eventually pay more for the loan than under the 10-year standard plan. However, if you are starting off in an entry-level job with a lower income, but expect your income to increase steadily, this might be the right choice.
Extended Repayment Plan
Payments can be either fixed or graduated, and borrowers have up to 25 years to complete payment. Monthly payments are lower than on the 10-year standard plan, but you will pay more over time in interest. For Direct Loans and FFEL, you must have more than $30,000 in outstanding loans under each category.
Income-Based Repayment Loan
This type of loan is based on your discretionary income, and maximum monthly payments must be 15 percent of the difference between your adjusted gross income and 150 percent of the poverty guidelines. As your income changes, the payments change. The borrower has up to 25 years to pay this off, and must prove partial financial hardship. Monthly payments will be lower than under 10-year standard plans, but you’ll pay more for the loan over time. After 25 years of qualified monthly payments (payments that meet the requirements of your loan repayment), the loan will be forgiven on any outstanding balance. However, you may have to pay income tax on any forgiven amount.
Income-Contingent Repayment Plan
The payments, calculated on an annual basis, are based on your individual situation, including gross income, family size, and total amount of loans. After 25 years of qualified monthly payments (payments that meet the requirements of your loan repayment), the loan will be forgiven on any outstanding balance. However, you may have to pay income tax on any forgiven amount.
Income-Sensitive Repayment Plan
The repayment schedule over 10 years is based on your annual income, and the payments change as your income changes. Every lender has a different formula to determine the monthly payment amount, and you will end up paying more for the loan over time than under the 10-year standard plan.
Stick to a budget.
The best thing you can do when you’re managing student loans is stick to a budget. There are even apps for budgeting that can help you! If you have never created a budget before, don’t worry! It’s not rocket science. Simply look at your income and expenses, and track your expenses for a set amount of time to get an accurate idea of where you spend your money. If there are areas of your spending where you can cut back, make those changes.
When you stick to your budget, you should always have enough money to cover all of your expenses, including student loans. The point of having a budget is knowing where every dollar is going and not spending more than you make.
Final Thoughts on Managing Student Loans
Managing student loans doesn’t have to be difficult. If it gets overwhelming, there is help available. Nonprofit credit counseling agencies like ACCC are great places to call if you need help. A certified credit counselor can help you come up with a budget and even enroll you in a debt management program if that is the best step for you.
If you are struggling to pay off your debt, ACCC can help. Sign up for a free credit counseling session with us today.