Student Loan Repayment after Graduation, Leaving School, and Before Entering the Work Force
Time to Pay Up...
Student loan repayment is a condition of borrowing. You sign a Master Promissory Note that forges a legal agreement between you and the lender. But there are various ways you can repay what you owe, even delay it.
Use this as a general guide to your repayment options. Find out what options are available to you and choose the one that’s right for you.
Repaying Your Federal Loans
Federal Direct or FFELP Stafford Loans are packaged with a grace period of six months. You have six months following college graduation before your Stafford Loan repayment kicks in. After that you are responsible for the regular monthly payments, which were originally agreed upon between you and your lender. Perkins Loan repayment does not begin until 9 months after graduation.
- Depending on your repayment plan you may have between 10 and 25 years to repay your Stafford Loans.
- You have 10 years to repay Perkins Loans.
If you have borrowed an unsubsidized Stafford Loan, monthly payments on interest are due within 60 days of the loan disbursement. Many student borrowers opt to defer these payments—interest is added to the principal or capitalized.
Use the Grace Period Wisely
Use your grace period wisely. Your goal should be to secure a job that allows you to reasonably manage all your monthly bills, including your student loans. If you are already struggling to make ends meet during your grace period consider modifying your repayment terms.
Parent and Graduate Loans
Parents and graduate students: if you have borrowed PLUS Loans you do not have the luxury of a grace period. You must begin repayment of principal and interest within 60 days of loan disbursement.
Avoid Default at All Costs
At all costs you must avoid defaulting on your loans. When you are unable to make full monthly payments and on time, don’t delay in contacting your lender: ask for an alternative repayment plan. When you default on a loan your credit is affected for years and could make you ineligible for other necessary purchases that require a credit check. You will also be ineligible for loan deferment and will be subjected to penalties in the event you want to consolidate your loans.
Learn what types of college cost and student loan calculators are available. Use these to calculate monthly loan repayment, design a college savings strategy, and evaluate your monthly budget in light of student loans.
Federal loan repayment options allow you flexibility with your budget:
- Standard repayment requires you adhere to a 10-year repayment term with fixed monthly payments.
- Income Sensitive or Income Contingent repayment is recommended if you have inconsistent income or a job that simply does not allow you to make a set monthly payment. (This repayment option is not available to parent or grad PLUS borrowers).
- Extended repayment is designed for borrowers in excess of $30,000 in loan debt. Monthly payments may be fixed or graduated up to 25 years.
- Graduated repayment features monthly payments that slowly increase in value over time.
Repaying Private Loans
Private student loan lenders may extend you a number of reasonable repayment options, such as extended or graduated. Take advantage of whatever flexibility you may be given; optional repayment plans allow you greater flexibility with private or alternative loan products. You will still be required to make scheduled on-time monthly payments over a set number of years.
But what if you are still unable to manage repayments regardless of plan? Student loan default is not a choice.
Student Loan Consolidation
Student borrowers and parent borrowers: if you continue to struggle to pay your monthly student loan payments, and on time, we urge you to explore your lender’s student loan consolidation products and terms. Will one of these plans work for you?
Student loan consolidation is not uncommon and for many graduates with multiple loans to repay, the option to roll all payments into one low, monthly payment is attractive and necessary in order to avoid default.
Guess what? Most lenders are very willing to discuss loan consolidation, especially when it heads off your risks of default. When you default it costs your lender money, too.
There may be some conditions attached to consolidation:
- You will still have a minimum monthly amount to pay.
- Loan repayment term will be extended, which means your final monetary outlay will be significantly more than your initial student loan.
Student Loan Deferment
What happens if you decide to go back to school for a more advanced degree? Most student loans have stipulations that allow for loan deferment in extenuating circumstances.
- Student loan deferment may be a viable solution for you if you are going back to school. As long as you attend at least half time you may defer your student loans, including interest accrual. Your repayment term will begin again when you graduate or drop below half time.
- Consider loan deferment in situations when you experience a lapse in employment.
- If you earn less than what is considered poverty level, you could also qualify for economic hardship deferment.
Loan repayment rule of thumb: Don’t delay discussing your financial situation with your lender if you experience any repayment difficulties.
