What Recent Grads Must Know to Repay Federal Student Loans

by Reyna Gobel

If you’re a recent grad, you’re probably dreading when you have to start repaying your federal student loans as much as if you were going to the dentist to get your wisdom teeth pulled. But student loan repayment is a lot less painful, and you’ll never require anesthesia. The reason why is because you have options for both getting payment breaks and making your payments more affordable.

The main way people get in trouble with student loans is by ignoring them and ending up in default. If you’re a new grad, take control of your student loan debt before your first payment is due with these steps.

1.Look Up Your Loans on the National Student Loan Data System Website

The National Student Loan Data System lists every federal student loan you ever borrowed, whether in undergraduate or post-graduate years. You’ll find out who services each loan as well. The loan servicer provides customer service on your student loan and is your direct contact.

Log in on the National Student Loan Data System Website with the PIN you created when you filled out your Free Application for Financial Aid. For now, I just want you to pay attention to the total amount owed. You can plug in this number to one of the various federal student loan repayment calculators to see what your potential payment options might be. You can find links to all these calculators and the National Student Loan Data System on our New Grad Center Resources page.

2. Don’t Wait Until You’re Working to Start a Repayment Plan

While it is important to get a job in order to repay federal student loans in the long-term, in the short-term, your repayment  amount could be as low as zero if you’re not working yet or if you’re making below a certain amount.  This is thanks to government-subsidized programs like Income-Based Repayment and Pay as You Earn. When you enroll in one of these repayment plans, the exact amount you pay each month is based on your income on your last tax return. Since you were a student last year, this could work out in your favor. If these options don’t work for you as your income rises, you can change payment plans next year. If you just need a temporary repayment break, ask your servicer about deferment or forbearance.

3. When You’ve Found a Job, Analyze Your Financial Situation

Congrats! You’re a working college grad ready to start your life. Now, let’s get your student loans under control. Create a budget of your fixed monthly bills, and see how much you have left over. If it’s not a lot, no worries. Look within your budget for what you expenses you can reduce or eliminate quickly yet painlessly.  Are you going out for most of your meals? Consider having friends over for a potluck instead. Are you living in an urban area and parking your car 90 percent of the time? Sell it and take public transit. I live in New York, and half the cars on my block are housing families of dust bunnies. If you need your car, compare auto insurance rates. Changing auto insurance providers can save hundreds. Do what you can to save money, and then at the end of the month figure out what you have available for a student loan payment. The more you can pay now, the less you’ll pay long-term in interest.

4. Pick a Repayment Plan

Now that you know what you can afford to pay each month, it’s time to pick a repayment plan. One great thing about federal student loans is that they have more options for payment breaks and managing your payments than nearly any other loan — and depending on your plan, you could have up to 30 years to repay them. When making your decision, remember that there are benefits and downsides to both longer and shorter repayment plans. For example, even if you’re able to repay your student loans on the 10 year repayment plan, it doesn't mean you should. You don’t want to pay your student loans off quickly at the expense of keeping your savings account empty. You should save enough money to contribute to an emergency fund, so if you lose your job, you can still pay rent and buy groceries. In some situations it is better to select a longer repayment plan, and pay more than the minimum when you can.

5. Don’t Panic

You don’t have to pay off your student loans tomorrow. You have student debt because you went to school to train for a career. More than likely, the amount you borrowed will be repaid several times over in additional income during your lifetime. However, in the meantime, don’t look at your total student loan debt and panic. You have years, possibly decades, to repay this amount. Plus, you have a career services department at your alma mater that will help you refine your career path well after graduation. Focus this time of your life on building your career, budgeting for the long-term, and treating your student loan payments as just another bill like electricity. When you do this, you’ll be surprised how much you can accomplish in other areas of your life.  

Introducing Wise Bread's New Student Loans Expert

Hi. I’m Reyna Gobel. I hope you enjoyed this article. I'm the author of CliffsNotes Graduation Debt and the audiobook How Smart Students Pay for School.

I know repaying student loans can be challenging for recent grads, so my advice doesn’t end with my books. I’ll be here every week blogging about student loans and post-college budgeting for recent grads. Have a specific question for me? I answer every tweet sent me @reynagobel. Have a wonderful day.

This article is part of our New Graduate Help Center — a new Wise Bread section offering financial tips and life hacks to recent grads. This section is made possible by the support of Sallie Mae. Check out more great tips from this section:

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