If you finished school last spring, the end of the year means student loan payments are about to begin. And nothing puts a damper on postgrad life quite like seeing that first student loan bill. Before that first due date arrives, get the upper hand on your student loans with this checklist.
Apply for income-driven repayment
Income-driven repayment can make your monthly student loan bill more affordable. If you qualify, it’ll cap your payments at a percentage of your income and extend your loan term to 20 or 25 years. And if you’re still on the postgrad job hunt, you may not have to pay anything right away.
In addition to lower payments, any remaining balance at the end of your extended loan term will be discharged — but it will also be taxed as income.
If you’re under an income-driven repayment plan and qualify for Public Service Loan Forgiveness, you can save even more money: After you make qualified payments for 10 years, the remaining balance on your loans will be discharged tax-free.
You’ll need to reapply each year to stay on your plan, so set a reminder one month beforehand to make sure you don’t miss the deadline.
Sign up for auto-pay
Many student loan servicers will knock 0.25 percentage point off your interest rate if you sign up for auto-pay, and it’ll keep you from missing payments. Plus, if you set it to withdraw more than your monthly payment from your bank account, you can pay off your debt faster. Just check that those extra dollars are going toward your principal balance to maximize savings.
Look into refinancing
You can refinance your student loans with another lender to get a lower interest rate. It’s usually best to refinance only private loans so you don’t lose any federal borrower protections, like income-driven repayment or forgiveness programs. To qualify, you’ll need to have a credit score above 700, a steady source of income and a low debt-to-income ratio.
If your credit score is on the low side, focus on building it by keeping credit card balances at or below 30% of your line of credit and paying your bills on time.