Your Grace Period is Over… Now What?

Michael Lux Blog, Student Loans 2 Comments

If you finished school in May or June of 2014, your first student loan bill may have recently arrived, or it will soon be arriving.  Unlike the electric bill, this is not something that you just pay the amount due and move on.  Getting your student loans in order takes some planning, but it can save you thousands of dollars in the long run.

Here is a sample game plan:

Step #1: Track down your debt.

In order to figure out your student loan situation, you first need to make sure you know who holds all of you debt.  Everyone, must carefully track down their debt for two reasons.  First, it is easy to have forgotten a loan from your freshman, so you want to be certain that nothing slips through the cracks.  Second, sometimes loans get sold from one company to another.  It is frustrating to not have any control over this, but it is the life of a student loan borrower.  Make sure you know who it is that has the right to collect your debt.

To find all of you loans, follow our simple guide to finding your student loan debt.  Our short guide will help you find both your federal and private loans.  This step ensures that you don’t fall behind on any loans and it also helps protect you from becoming the victim of a loan scheme.

Step #2: Make a budget

Getting your student loans under control is all about looking at the big picture.  Surviving one month of bills is great, but you want to put yourself in a position where you are not struggling to pay your debt for the next decade or two.  In order to put together a plan that works, you first need to make a realistic budget.  If you carefully track your expenses, you will be able to determine exactly how much money you can spare each month on your student loans.

Step #3: Research Federal Programs

If you have student loans through the federal government, there are a variety of programs that you will want to know about.  Even if you don’t necessarily qualify, it is good to know all of your options and have them in mind as a plan B or plan C.

The first one two know about is that there are many Federal Government Repayment Plans.  The most important one is probably the Pay As You Earn plan.  The great part about this repayment option is that your monthly student loan payments are based upon your income.  The advantage is that you can always afford your monthly payments, the downside is that you could end up spending a ton on interest.  Keep in mind that the “default” student loan play is the 10 year plan.  For most people the 10 year plan has the highest monthly payments, changing plans can make the monthly payments much lower, even to zero dollars per month if you are unemployed.

The other program to be aware of is student loan forgiveness.  There are basically two parts to the student loan forgiveness.  Part One is forgiveness for people who are public interest employees.  In short, if you make 10 years of eligible payments and the remainder of your debt is forgiven.  Part Two is forgiveness for people who are signed up for the Pay As You Earn or Income Based Repayment plans.  The short version there is that if you make all your required payments for 20 or 25 years, the remainder of your debt is forgiven, but taxed.  If you are interested in pursuing student loan forgiveness, it is very important to do your research.  These programs are somewhat complicated, but could result in tens of thousands of dollars of student debt disappearing.

Step #4: Think about consolidation

Consolidation occurs when you have a new lender pay off one or more loans on your behalf.  The old loans are history, and you now owe money to the new lender.  This can be a method of lowering interest rates and reducing your monthly payments.  There are two types of consolidation.

Option One is consolidation with the Federal Government.  Consolidating with the federal government doesn’t actually lower your interest rate (they use a weighted average of all of your loans), but it is a great idea for some because you can consolidate loans that might not be eligible for programs like loan forgiveness into a loan that is eligible for forgiveness.  The other nice part about federal consolidation is that everyone is eligible to do it, there is no need for a credit or income check.  Click here to read about federal student loan consolidation and be sure to check out our article on federal consolidation strategy.

Option Two would be consolidation with a private company.  Private student loan consolidation is a great option if you have decent income and a good credit score. Going this route can lower your interest rates and give you longer to pay off your loans.  The downside is that not everyone will qualify, especially recent grads, so this is a topic that is worth revisiting every once in a while.  You should also be very careful about consolidating your federal loans into a private loans, because it can result in a loss of your federal benefits, including some of the ones we have already covered.  If you are interested in looking into private consolidation, be sure to check out our list of private student loan consolidation companies and reviews.

Step #5: Stay vigilant with your student loans

No matter how bleak your finances are, ignoring your student loans will always make your problems worse.  Interest and late fees can make a bad situation even more unmanageable.  Doing your research and making a plan can ensure that you avoid a student loan nightmare.