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Read This Before Making Your First Student Loan Payment

Dec. 7, 2018
Loans, Student Loans
Read This Before Making Your First Student Loan Payment
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The end of the student loan grace period means an end to the heady days of payment-free living. Now, every month, you’ll part with a chunk of money that perhaps you’d rather spend on something — anything — else.

You can’t change the fact that you have student loans. But you can make the next 10 years easier, and perhaps even part with those loans sooner. Here’s how.

Pick a timeline

Most student loans are federal loans, and the government places borrowers on a 10-year repayment schedule unless they choose a different one.

If 10 years sounds like too long, you can pay off student loans early. It’s a worthwhile goal if you have at least a month of expenses saved, if you’re also saving for retirement, and if you don’t have credit card debt, which is generally more expensive than student debt.

Consider refinancing student loans once you have solid income from full-time work. A private lender will pay off your current loans — both federal or private — and issue you a new one at an interest rate tied to your financial history. You’ll save money over time if you receive a lower interest rate, but you’ll need a credit score in the high 600s or above to qualify without a co-signer.

For some, though, 10 years is too short, and monthly loan payments are too high. Sign up for income-driven repayment, which caps payments at 10% to 15% of your income and, if your income is low enough, can cut them all the way to $0. As interest adds up, that means your balance may grow, rather than shrink. But if you make payments under these plans for 20 to 25 years, the remaining balance is forgiven.

Error-proof your payments

No matter what repayment term you choose, one rule is sacred: Set up autopay.

This lets your lender or student loan servicer debit the monthly payment from your checking account automatically. You won’t forget to make a payment, and you’ll also generally receive a quarter-point interest rate discount. Ensure there’s enough money in your checking account to avoid an overdraft.

Some servicers will let you deduct more than you’re required to pay when you make automatic payments, which will get rid of loans faster.

If you’re extra motivated — and trust yourself to stick to a schedule — you could make biweekly payments manually online. By paying half the amount you owe every two weeks, you’ll end up making 13 full payments by the end of the year, rather than 12. Or you can make a full extra payment every two weeks and conquer your loans in half the time.

Commit early to loan forgiveness

Getting your student loans forgiven could be a dream that actually comes true, as long as you pay close attention to the rules of the program you’re interested in.

It’s smart for public service employees in particular to explore their options. The Public Service Loan Forgiveness program dissolves your federal loan balance after 120 on-time loan payments, as long as you work for an eligible employer. Teachers, nurses, doctors and Perkins loan borrowers have additional federal student loan forgiveness options.

But forgiveness won’t happen automatically. Some programs require you to have particular loan types to be eligible, to choose specific repayment plans, or to work for qualifying employers.

Stay in close touch with your student loan servicer, starting before you make the first payment, to ensure you’re on track.

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