Repaying student loans is a huge deal. Make your payments on time and you’ll build credit that your future self will thank you for. Great credit means access to favorable loan rates and other perks. On the flip side, sending late payments or not paying at all can put you in a hole that might take years to dig out of. Missed and late payments can stay on your credit report for up to seven years!
We’re going to cover a lot of ground in this post. You’ll find out where to unearth critical repayment terms, as well as learn tips for successfully repaying the loan. Although there are many resources available to you, never forget that the ultimate responsibility for understanding and repaying your loan rests with you as the borrower. Without further ado, here are the three steps needed to pay your student loans on time.
1. Know What You Owe
An accurate understanding of how much student loan debt you have is crucial. The sooner you have this information, the sooner you can begin preparing to handle these financial obligations.
If you have federal loans, check with the financial aid office at your school. You can also create a My Aid account with studentaid.gov to get details about your loan(s). My Aid will show whether they’re subsidized or unsubsidized, as well as the outstanding principal and interest-only balances plus current interest rates. To see all your loan details, you will have to click on Additional Loan Information.
Note that My Aid presents information ONLY on your federal loans. Unfortunately, there’s no centralized database for private loans. You’ll need to do some legwork to find critical loan details. Start by checking records you or your parents might have about your private loans. Your school’s financial aid office is also a resource. Finally, your credit report will show, among other things, loans you’ve taken out. Be sure you request your report from www.AnnualCreditReport.com. This is the only official website guaranteed by federal law.
My Aid will also show information about grants. Grants do not require repayment, so we’re going to skip over these.
2. Figure Out the Repayment Terms
All loans have terms - the conditions for repaying your loan. Terms typically include the repayment period, monthly payments, and any special conditions like whether the loan allows for deferment, forbearance, and/or income-based repayment.
As you look through your loan documents, keep an eye out for information that relates to:
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Loan type – subsidized (government pays the interest while you’re enrolled at least half time) or unsubsidized (you’re responsible for paying all interest that accrues)
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Prepayment penalty fees (federal loans, no, but private loans might have this penalty fee)
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Loan forgiveness, deferment, or forbearance
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Income-based repayment – federal loans offer this while private loans may or may not)
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Rules around consolidating (refinancing multiple loans into one)
Generally, for federal loans, repayment begins upon graduation, leaving school, or changing enrollment status to less than half time. Private loans vary by the terms of individual lenders. You may be required to begin repayment while you’re still in school.
Regarding consolidation, federal loans are eligible for the federal government’s Direct Consolidation Loan program. You can find details on studentaid.gov. Private loans are not eligible for this federal program. There may, however, be other avenues for debt consolidation through other lenders.
3. Make a Plan
After researching all your loans, you need to either create or update your budget. It’s absolutely essential that you have the funds to meet your loan obligations. If that means delaying getting that new car, you need to make that sacrifice now. How you handle student loan repayment can truly make or break you in terms of your credit.
If you discover that your student loan payments are simply too high and you’re in danger of missing a payment, contact your loan servicer right away. Being proactive will generally work in your favor. Although the loan servicer will go over options with you, you should go back to your loans’ terms to refresh yourself on your options.
Federal loans might allow you to postpone or lower your payments through forbearance or deferment. Keep in mind that you need to determine if interest charges will or will not accrue during either forbearance or deferment. Loan forgiveness may even be an option. Private loans generally have fewer options.
Contact information for federal loans will be available in your My Aid account. Your private loan servicer’s contact information will be in the loan documents. Additional private loan resources can be found on the Consumer Financial Protection Bureau’s website, consumerfinance.gov.
For many reasons, including future earning potential, earning a college degree is a very worthwhile investment. When you take out student loans and repay them on time, you’re increasing the value of that investment by building excellent credit.
