Once you are finally ready to make payments on your student loans, it might seem like a pretty straightforward thing to do—just start paying, right? But depending on when you pay and even when you don’t pay, you can get burned and end up owing your lender way more money than you assumed you would.
So how do you make sure that you end up paying exactly what you’re supposed to? Here are five tips to help you get started.
Key Takeaways
- The earlier you start paying back your loans—even while you’re still in school—the quicker you’ll pay them off, and the more you’ll save in interest.
- Keep on top of your due dates; if you miss a payment, it could be financially damaging.
- Hold off on consolidating loans with your spouse. There is too much at stake to lose, and if something happens, you could be stuck paying back a loan that isn’t even yours.
- When given options to pay back your loans, do your research and choose the one that best fits your needs.
- If you’re looking for a student loan, shop around for the best interest rates and save money from the get-go.
Don’t Wait to Start Paying
It is never too early to start paying back your student loans, even if you haven’t yet graduated. Most lenders give borrowers a six- to nine-month grace period from when you graduate or leave school until when you need to start paying your loans back. The grace period is there to help you to find the right repayment plan that fits your needs and land a job so you are more financially stable.
However, just remember that during any grace period, interest is still accumulating on your loan and the amount that you owe is climbing. So forget waiting for the grace period to be over; instead, start paying your loan back as soon as possible. If you’re working a part-time job, consider taking even 10% of your paycheck to pay down your debt. Chipping away at it when you can will definitely help in the long run.
On June 30, 2023, the Supreme Court struck down the Biden-Harris Administration’s attempt at one-time student loan forgiveness. With its defeat came the end of the pause on payments and interest accrual sparked by the COVID-19 pandemic. Interest began accruing on federal loans on Sept. 1, 2023, and payments resumed Oct. 1, 2023.
Don’t Be Late
No matter when you choose to start paying your loan, do not miss your monthly due date. If you do, you will be charged a late fee, which ends up taking more money out of your pocket. On top of that, any payments more than 90 days late will be reported to the relevant credit bureau. That might not directly affect the amount of your student loan payments, but multiple late payments can lower your credit score and, as a result, affect your future loans and interest rates. The higher the interest rate on any loans you take, the more you’ll pay.
As part of the 12-month ‘on ramp’ for student loan repayment after the payment pause, the Department of Education said that missed payments will not be considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies from Oct. 1, 2023, to Sept. 30, 2024.
Don’t Consolidate
After marrying, many couples combine their incomes into one joint bank account to pay the bills. Thus, it makes sense that they may want to combine both of their student loans into one payment as well. While that will mean just one bill and a single payment, you may wish to consider otherwise.
Nobody wants to think about this during wedded bliss, but if you were to get divorced or your spouse were to pass away, you could be left with the financial responsibility of the entire bill and only one income. In addition, consolidating your student loans might cost you certain tax benefits or loan forgiveness. If you are interested in a consolidation loan, make sure to read the fine print before signing on the dotted line, so you know exactly what you are responsible for if tragedy strikes.
Do Choose Wisely
When it is time to pay, you will have a variety of payment options to choose from. For example, a standard repayment plan consists of equal payments over 10 years, while income-driven repayment plans are pay-as-you-earn.
Keep in mind that the payment plan with the lowest monthly payment might be what you can afford right now, but it will take you longer to pay off the loan, and you will pay much more in interest. Closely review each option and see what best suits your financial needs and keeps the most money in your pocket, not your lender’s.
Do Shop Around
Sometimes, not getting burned starts way before you even get your student loan. Borrowing too much money or not searching for the best interest rates can you cost you thousands in additional interest that you’ll pay back to the lender. Do your due diligence and shop around. Choose several lenders and compare the interest rates they offer with what the government offers for their student loans.
Can I Consolidate Federal Loans and Private Loans Into One?
Yes, but it may not be the best choice. In order to consolidate federal and private loans, the resulting single loan will be a private loan. You cannot roll a private loan into a federal loan. While a single payment may be convenient, moving to a private loan will eliminate any eligibility you may have for loan forgiveness, forbearance or deferment.
Do Federal Loans or Private Loans Have Lower Interest Rates?
Typically, federal loans have a lower interest rate than private loans. Additionally, some federal loans are subsidized, allowing a grace period after leaving school or graduating when no payments are required. Many private loans expect borrowers to start paying immediately.
Are Private Student Loans Eligible for Income-Based Repayment Programs?
No. Only federal student loans are eligible for any federal student debt relief programs, whether that’s reduced payments or debt forgiveness.
The Bottom Line
Don’t throw money out the window. Make sure you read any promissory notes before signing so you understand how to pay back your student loans, what fees you may accrue if your payment is late, and other details that can cost you money. The idea is to pay off your loan efficiently and effectively while keeping as much money in your pocket as you can. The last thing you want is to be surprised by fees or penalties because you didn’t read the contract or follow the instructions.