Recent grads often find themselves consumed with finding new jobs, making housing decisions, and dealing with other major life changes. One important item that often gets lost in the shuffle is managing student loans. Because most student loans come with a six month grace period after finishing school, this debt often isn’t addressed until the six months have passed. Unfortunately, graduates who wait to address their student loans can miss out on many great financial opportunities. Even if you haven’t found a job yet, steps can be taken to slow the growth of interest on your student loans. To make things easy, we have put together a student loan to do list to help make repayment as smooth as possible.
Item 1: Track down all of your student loan debt
For federal loans, this means going to the Department of Education’s Student Loan Database. The federal government employs many servicers, the companies tasked with managing the repayment of your federal loans. If you have multiple federal student loans, you may have to work with multiple student loan servicers.
Unfortunately, the federal database only has federal loans. To find all of your private loans, you will have to take a couple extra steps. You can start by looking through your account statements and financial aid docs from while you were in school. Loans that did not come from the federal government are private lenders. Another option is to pull a copy of your credit report. All of the lenders who believe you owe them money should appear on your credit report.
To keep track of all of your lenders, it will be helpful to make a list or to create an Excel Spreadsheet. For each lender, you should note the following:
- Lender Name
- Contact info (phone number and website)
- Loan Balance
- Interest Rate
- Monthly Payment
If you have multiple loans with some lenders, it is best to track each loan individually. At some point you may want to pay off one loan and not the other.
Item 2: Navigate federal government red tape
Repayment of federal student loans can be complicated. There are many types of federal loans, repayment plans, and programs.
Some loans are not eligible for programs like public service loan forgiveness or some of the best repayment plans. However, these loans can become eligible if they are consolidated with the federal government. This process does not change your interest rates, but it can change eligibility.
If you think you might be spending the next ten years working for a non-profit or for the government, educate yourself on the basics and fine print of Public Service Loan Forgiveness. Even if you are not going to be working for a non-profit, there are many other types of loan forgiveness to investigate.
The Department of Education has a very useful chart that shows repayment plan eligibility based upon federal loan type. Many loan types fall into the “eligible if consolidated” category. If your loans fall into this category, consolidation could be essential for you.
During this step, a call to your federal loan servicer can be a very helpful. They should be able to explain the eligibility of your loans for various programs and whether or not federal consolidation is a good idea for you. Some of the customer service representatives are better than others, so it may take a few phone calls before you chat with someone helpful.
One thing to keep in mind with federal student loan consolidation is that it can take a few months. If you are already working in public service, you may want to get the consolidation started long before your grace period ends. The sooner it happens, the sooner your 10 year clock starts.
Another thing to remember with federal student loan consolidation is that it can only be done through the federal government. If you refinance federal loans with a private company, you may get lower interest rates, but your loans will no longer be federal loans and they will no longer be eligible for student loan forgiveness or income-driven repayment plans. Federal direct consolidation is a free process that can be done by any borrower, there is no reason to bring in an outside company for this step.
Item 3: Pick the repayment plans with the lowest monthly payment
Going back to your list of lenders, both private and federal, you will want to reach out to all of them to get enrolled in the repayment plan with the lowest monthly payment.
For the federal student loans, this often means signing up for an income-driven repayment plan. As a recent graduate, your income on your last tax return was likely minimal, so this means your monthly payments will be very low for the first year. They could even be $0 per month. The standard repayment plan is calculated to pay off your student loans in 10 years. This repayment switch can free up a lot of money each month.
Many private lenders also have some limited flexibility with repayment plans. This can include graduated repayment plans, where you pay less at the beginning and more as time passes.
Item 4: Plan your attack strategy
If you just pay the minimum on all of your student loans, you will spend a fortune in interest and maximize lender profits.
The idea behind finding the lowest possible payment on all of your loans is that it allows you to attack your high interest loans first. The sooner you pay off the high interest student loans, the less you will spend on interest. Once the highest interest loan is paid off, you can direct your focus on the next highest interest rate loan. This aggressive strategy will help you eliminate your debt as soon as possible.
To help you plan your strategy, be sure to check out our article that discusses how retirement, other debt, and student loan planning come together.
If you are working towards public service loan forgiveness, you will want to certify your employment after a few months. These forms are not required, but because more than 1 in 3 are denied, you will want to apply early so that you can correct any eligibility issues right away. Many people make the mistake of working for years thinking they are on their way to loan forgiveness, only to learn they haven’t even started yet.
Once you have an established job, you may also want to look into private student loan consolidation. Going this route can turn your high interest student loans into low interest student loans. If you are considering this option be sure to check out our lender reviews and strategy guide.
Don’t wait for the first student loan bill to show up in your mailbox. With each passing day your student loan balance is growing due to interest. The sooner you make a plan and put it in action, the sooner you will be able to pay off your debt. Even if you don’t have a job yet, the steps you take now could save thousands of dollars in the future.