Repaying your student loans


Your college diploma is a little piece of paper with a big impact on your financial future. Unfortunately, so is your student loan promissory note.

Now that you’ve graduated, it’s time to pay the piper for the loans that have been putting you through school all this time — and playing dumb or pleading ignorant isn’t going to cut you any slack. Here’s what you need to know to pay back what you owe and protect your financial future.

Figuring out what you owe

Most federal loan programs offer a grace period of between six and nine months after graduation before your repayment period begins. Knowing when the repayment process begins and making sure that your lender has a current address for you is crucial. Missed payments can heavily impact your credit score and could result in a number of nasty fiscal consequences including additional fees, losing your federal and state income tax refunds to the government and wage garnishment.

Get ready to start the repayment process by boning up on what kind of loans you have, who your lender is, how much you owe, how long you have to pay it back, what you should be paying each month, and what fees you’re responsible for. To find out where you stand:

  • Dig up all the paperwork related to your loan, including the promissory note you signed at the beginning. If you don’t have it immediately on file, ask your parents, who may have been smart enough to file it all away. Or you can download a copy of your note at the Department of Education’s Federal Student Aid website.
  • Log on to the Department of Education’s Federal Student Aid website if you haven’t already. By entering in some personal information and your Department of Education PIN, you can access a list of what you owe on all your federal student loans. (Note: If you don’t have a PIN already, you may request one at the site.)
  • Contact your university’s financial aid office. A counselor will be able to provide information on private, nonfederal loans that have been disbursed to you through the university so that you can get in touch with your lender. If you have private loans on top of federal ones, reach out to those lenders directly to make sure that you’re fully aware of your payment responsibilities.

Picking a repayment plan

Although your student debt is just as serious as, say, your electric bill or your rent, you generally have more flexible options for repayment. Before your grace period ends, work with your lender to find the easiest plan to pay back what you owe without going broke:

  • Standard repayment. The most direct method of paying off your student loan, a standard repayment plan expects you to pay a fixed amount, at least $50, each month. You’ll also have up to 10 years to pay off the loan. Although your monthly payments will be slightly higher than they would be under the other repayment plans, you’ll wrap up the debt more quickly, which means you’ll pay less in interest.
  • Extended repayment. As with the standard repayment plan, you’ll still pay a set amount each month, but you’ll have longer to pay off the debt: up to 25 years, depending on how much you owe. To qualify, you must have more than $30,000 in federal student loan debt. It’s a good idea if you have a hefty loan, but consider the extra interest you’ll accrue.
  • Graduated repayment. Most recent college grads start out with a small paycheck that increases over time. The graduated repayment plan mirrors that expected salary life cycle. You’ll start off making small payments in the first few years after graduation, then work up to larger monthly payments. While initially you’ll be required to pay the interest only or half the payment you’d make under the standard repayment plan — whichever is greater — eventually you’ll pay substantially more. The plan does come with a few protections. Under this plan, your payments will never increase to more than three times the payment amount you started with.
  • Income-contingent/income-based repayment. Each year, you can have your monthly payments adjusted to an affordable level based on how much you’re earning. As your payments increase or decrease along with your income, you’ll have greater flexibility to chip away at your debt without stressing your family finances. In both plans, if you make consecutive payments for 25 years, the federal government will forgive any remaining debt you still have.

Switching plans

Although you select a payment plan when you first begin repaying the loan, with federal loans you can always switch plans if your financial situation changes. Not all plans are available for all loans, and some loans carry limits on the number of times you can switch repayment plans each year. Private loans offer their own set of repayment options and frequently don’t include income-based plans. Check with your lender for specifics on what’s available to you.

Other ways to ease the burden

Tacked onto your student loan are origination and administrative fees. You may be able to reduce your fees on private loans by negotiating with a customer service representative at the loan-holding institution. Other lenders will shave a point off your current interest rate if you agree to make your loan payment online or allow the payment to be automatically deducted from your checking account each month. You can get time off for good behavior, scoring a reduced interest rate for making a certain number of consecutive monthly payments on time. Unfortunately, the only borrower benefit federal loans offer is a 0.25 percent reduction in your interest rate for paying by electronic debit. Contact your lender about money-saving options.

Another way to assuage your student loan pain: take advantage of tax incentives by deducting your student loan interest, up to $2,500 a year. The Internal Revenue Service publication Tax Benefits for Higher Education explains how you can take advantage of the tax break whether you have a federal or private loan.