When you first graduate college, student loans are both the last and first thing on your mind. You want to know celebrate your graduation, but you're also thinking about how you're going to repay your education debt. Before you worry too much, the good news is you'll likely have a grace period before you have to start repayment.
Here are the five things I recommend new grads do to be in a good position to repay student loans.
1. Learn when their grace period ends and about other repayment rules for different loan types.
If you have federal student loans for yourself, more than likely you'll have a six month grace period after graduation. A grace period is the time before you have to start making student loan payments. While the six month period is the standard, you should still check the exact date that your first payment will be due. You also need to find out deadlines for certain repayment plans such as income-related options. If you have a private student loan, you need to find out if you have a grace period at all and for how long.
2. Practice making student loan payments to yourself first.
Making practice payments is one of my favorite tips. Why? You'll more than likely pick a better repayment plan option if you know how it will impact your budget. For instance, there's one repayment option where you'll pay off the loan faster but it's a $500 payment versus $250. You're looking at your first paycheck that's much more than what you're making while you're in college and think 'I can afford $500.' Then one month you have an unexpected medical expense or your electric bill doubled between spring and summer because of air conditioning usage. Don't put yourself in a bad position where you don't have a checking account cushion or emergency savings. The $500 per month you save during the grace period, will give you $3,000 you can use in case of an emergency. And if the $500 per month wasn't manageable, you can select the lower payment, then pay extra when you can.
4. Submit income-related paperwork as early as possible.
If you need proof of your income for a specific plan, don't wait. Submit proof as soon as possible. You don't need to wait until you get your next job. Your payment is based on current earnings. Submitting income-proof later than the processing time needed may mean you are subject to payments on the standard 10-year plan. The payments for this plan could be multiples than of your income-related payment. Respond to any communication from your student loan servicer. Also, check at least a month beforehand if your paperwork has been processed. You don't want to be surprised when the payment isn't processed.
5. Understand your payment break and repayment plan change options.
The best part about federal student loans is the option to postpone payments when you can't make your payments. You more than likely can't do this with your car loan, mortgage, or rent. But you have to be careful about when you decide to take a break. For instance, sometimes your better off choosing an income-related plan. The really good news? Your payment could be as low as $0. So why would take a break from a $0 payment? Now, your options and make the best decision for you. You can always change repayment plans later on or take a break when you need it. As far as repaying private student loans, ask your servicer about payment break and payment options. You may be surprised at what's available to you.
