It’s that time of year for student loan borrowers: Grace periods are ending. If you graduated in May or June 2015, you probably received your first student loan bill this November or December.
Now that your loans are officially in repayment, there’s a lot to stay on top of to manage your monthly payments. Here’s what you need to know.
1. One million borrowers recently enrolled in an income-driven repayment plan
If you feel isolated by your student debt, don’t – because you’re not alone and there are ways to save. Almost 1 million student loan borrowers entered an income-driven repayment plan in November 2015, according to a Department of Education spokesman. That’s 1 million borrowers who capped their monthly payments at a percentage of their monthly income.
2. The average student loan debt is $28,950
The class of 2014 owed an average of $28,950 each, up by 2 percent from the previous year, according to a 2015 report by the Institute for College Access and Success. Based on a standard 10-year repayment plan at a 3.9% interest rate — the average direct subsidized loan interest rate between 2010 and 2014 — the average borrower owes around $292 a month.
3. Payments 3 months late affect your credit score
Student loans are considered delinquent the first day after you miss a payment. If you don’t make the payment for 90 days, or about three months, your loan servicer will report the delinquency to the credit bureaus, and your credit score will take a hit. This could make it more difficult to get a car loan, rent an apartment, or sign up for a cell phone plan.
If you’re struggling to make payments, consider switching to a different repayment plan to lower the monthly amount you owe — we outline your options in number six below. Two other options are deferment or forbearance, which allow you to temporarily pause your loan payments.
4. There are four main student loan servicers
Even if you have a federal student loan, you won’t be making payments to the federal government directly — the government contracts private loan servicing companies to collect payments.
There are many loan servicers, but four main ones: FedLoan Servicing, Great Lakes, Navient and Nelnet. Any decision you make about your loan — changing your repayment plan, entering deferment or forbearance, or consolidating your federal loans — goes through your loan servicer. If you don’t know which company is yours, look it up by logging in to the Federal Student Aid website.
5. Five million borrowers are eligible for a new income-driven repayment plan
Five million more borrowers are eligible to cap their monthly payments at 10% of their monthly income through the new Revised Pay As You Earn (REPAYE) repayment plan.
The new income-based repayment plan started in mid-December and extends the original Pay As You Earn (PAYE) plan to any federal Direct Loan borrower. PAYE also allows borrowers to cap their monthly payment at 10% of their income, but it’s only available to borrowers who took out their loans within a particular time frame.
6. There are seven repayment plans to choose from
When your grace period ends and your loans go into repayment, you’ll automatically be on a standard repayment plan, which divides your balance into equal payments paid over 10 years. But you have six other student loan repayment plans to choose from; we’ve summarized each below. To see which plans you’re eligible for, enter your loan information in the Department of Education’s Repayment Estimator tool.
- Graduated: You’ll still make payments over 10 years, but the payments start smaller and gradually increase every two years. This is a good option if you expect to earn increasingly more as your career progresses.
- Extended: This plan increases your term from 10 years to 25 years. You’ll make equal, monthly payments that are smaller than what you’d pay with the standard plan, but you’ll pay more over time in interest.
- Income-Contingent: This income-driven plan caps your monthly payments at either 20% of your discretionary income or what you’d pay on a 12-year plan with fixed, monthly payments — whichever is less. Your remaining balance will be forgiven after 25 years.
- Income-Based: This income-driven plan caps your monthly payment at 15% of your discretionary income (or 10% if you first borrowed after July 1, 2014), and forgives your loans after 25 years (or 20 years if you first borrowed after July 1, 2014).
- Pay As You Earn: This income-driven plan, known as PAYE, caps your monthly payments at 10% of your discretionary income and forgives your loans after 20 years. To qualify, you have to prove you’re experiencing financial hardship, have borrowed your first federal direct loan after Sept. 30, 2007, and have taken out at least one more loan after Sept. 30, 2011.
- Revised Pay As You Earn: This new plan, known as REPAYE, offers the same benefits as PAYE but is available to a wider range of borrowers.
There’s a lot to keep track of regarding your student loan repayments. For more resources about how to minimize and manage your monthly payments, check out NerdWallet’s guides:
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