College grads with public student loans typically get a six-month grace period after convocation before they have to start making payments. And that means for Spring 2018 grads, it’s probably time to start paying up.
Student loan debt can be overwhelming. If you’re lost on where to start, follow this checklist.
What to Do Now That the Student Loan Grace Period Is Over
 |
| What to Do Now That the Student Loan Grace Period Is Over, student loans,student,student loan debt,student loan,student loans in grace period,student loan crisis,grace period meaning,federal student loans,what is the definition of federal perkins loan,what is the meaning of federal perkins loan,how to reduce your student loan debt?,how to post the bank loan entries,grace period definition student loan,what happens when your loan is accelerated%3f |
Familiarize Yourself With Your Loans
You need to know the basics of your student loans: Who the servicer is (and this can change over time), how much you owe, what your repayment plan is, how much you owe each month, the interest rate, etc. Write this down somewhere so you can keep track of everything.
For federal loans, go to the Department of Education’s database, which will have all the information you need. If you have private loans, call your lender(s) and ask for all of the pertinent information.
Consider a Different Repayment Plan
Once you have the basics down, you need to get a handle on your budget. Subtract your monthly expenses from your income, and see how much you have leftover for your student loan payments. You need to always pay off the minimum, but if you can afford a bit more each month—say, by having a roommate or cutting out some other extraneous expense—then put that toward your debts.
If you’re overwhelmed after you calculate your budget, consider switching your repayment plan to an income-based repayment plan. These plans require you to pay a percentage of your income if you’re under a certain income threshold. Call your servicer and ask about the different options available to you. As we wrote previously, “income-driven repayment plans may not necessarily give you the lowest monthly cost of all the repayment options, but...you need to be enrolled in an income-driven repayment plan to qualify for the Public Service Loan Forgiveness program or other forgiveness options.”
If you absolutely can’t afford your payments (or you don’t have a job yet), then consider deferment or forbearance. As we covered previously:
Forbearance means your payments are temporarily reduced, though interest continues to build, while you may be able to get interest waived with a deferment, depending on the type of loan you have. You’ll need to apply with your servicer before you default, and what you qualify for will depend on factors like your employment status and payment history.
Ideally, before that happens, look into your other repayment options and find something that works for you.
Set Up Auto-Payments
Auto-payments will ensure you’re making all of your payments on time, and, depending on your lender, could mean a 0.25 to 0.50 percent reduction in your interest rate. It’s modest, yes, but it’s something.
Learn About Employer Contributions
As student loan debt becomes a bigger burden on those in the workforce, more employers are offering contributions toward their employees’ debt. These student loan repayment plans allow employers to make monthly contributions directly to the principal balance, according to the Society for Human Resource Management. While these programs are not particularly widespread yet, it’s worth asking your employer if it’s an option, or giving more weight to potential employers who do this.
Always Make the Minimum Payment
Failing to pay anything toward your loans means they’ll end up delinquent, which hurts your credit score and finances long term. Absolutely make at least the minimum payment each month.
Don’t Fall Victim to a Loan Scam
Chances are, if you have student loan debt you’ll be approached by someone who claims their company can help you pay off your loans faster, if you pay them a certain amount of money each month. Usually, they say that they’ll help your debt be “forgiven.” Know that this is a scam. No one can magically make your debt disappear; loan forgiveness is extremely rare, and paying someone to “help” you pay your loans will likely result in you losing a bunch of money and falling behind on your loan payments, which can lead to garnished wages, seized tax returns, etc. If you have private loans, forgiveness isn’t going to happen at all, so be alert.
Don’t trust these people. Hang up, or report them to your state’s attorney general or the Federal Trade Commission. It’s only natural to want an easy way out, but you have to repay what you owe. Here’s more on how to spot a scam:
Put Extra Toward Your Principal Balance
If you can swing it, you can request any extra payments above your monthly minimum be applied to the principal balance of your loans rather than the interest. The benefit here is twofold: Your balance is lowered overall, which means lower payments, and your interest payments are also lowered.
As we’ve covered before, though, servicers won’t just apply your payments like this out of the goodness of their hearts. You need to direct them to do so, and then check in to make sure it’s been done appropriately. You can find a form letter here that you can send to them.
How to Prioritize Your Many Financial Needs
As a young adult, paying off loans, saving for retirement, building up an emergency fund and getting yourself on the right track can seem impossible. You’re likely starting with a low salary, and it will seem like there’s just not enough money to do everything you want and need to do.
And you’re right, there isn’t. But that doesn’t mean you can’t make a smart plan. Here’s what to prioritize:
1. Make sure all of the essentials are paid for: Rent, transportation, food, clothing, etc.
2. Make your minimum monthly payments on your student loans.
3. Build up your emergency fund. Money in a 401(k) isn’t going to help you if your car breaks down. How much varies, but $1,000 should be your first goal, which you can then build on. This can be done simultaneously with #2. Automate everything!
4. Contribute to your retirement account, either up to the employer match in your 401(k) or a reasonable amount on your own into a Roth IRA. You likely can do this and save in your emergency fund at the same time, depending on how much you contribute. One percent is enough, two percent is even better.
5. If you have any extra, put that toward your student loans. After making the minimum payments, you want to prioritize investing for retirement, which will have a higher return than putting more toward your student loan.
Obviously, what you end up doing will depend on your circumstance and how you relate to your money. Maybe you want to focus on paying down your debt above all else. That’s not what a lot of financial advisors would say is the most prudent move, but if that’s what will make you most comfortable and less stressed with your money, than that’s what you need to do. Allow yourself to mess up and get back on track.
Post a Comment