Whether you’re preparing to graduate soon or have already received your diploma, congratulations on this major accomplishment! You put in a lot of work to reach this point, and you should be really proud of what you’ve done.
Now is also the time to think about what comes next. If you took out student loans to help pay for your education, paying off your loans is on the list. Navigating loan repayment can be quite stressful, especially for recent grads: having to make monthly payments and seeing how much you owe in total can make you doubt your ability to reach your financial goals.
It’s natural to feel overwhelmed by your loans; thankfully, there are options and resources that can empower you to take on this debt, build financial wellness, and live your life. From taking advantage of the post-graduation grace period to lowering your monthly payments to avoiding missed payments, this guide will break down what you need to know about loans. Let’s dive in!
Loan Basics 101
Time to learn a few key ideas that’ll help you while you’re paying off your loan(s). Let’s start at the beginning.
What is a loan?
Simple question, right? Not always. A loan is money you borrowed from a lender—whether that’s the U.S. government or a bank—that you have to pay back. But not all loans are the same. Here are the two types of loans you may have:
- Federal loans: Money you’ve borrowed from the U.S. government. These kinds of loans usually have lower interest rates (we’ll get to what that means in a bit) and more flexible options if you can’t make your payments.
- Private loans: Money you’ve borrowed from a bank or a credit union.
Note: Keep in mind, loans aren’t the same thing as grants. If you received a grant for school, you don’t have to pay that money back.
What does “principal balance” mean?
The principal balance on your loan is the remaining amount of money owed on your loan. Keep in mind, the principal balance doesn’t include interest.
How does interest work?
Interest is the amount of money you have to pay back on top of what you borrowed. You can think of it as a fee you pay to borrow the money.
Your interest rate tells you exactly how much extra you owe on your loan. The higher the interest rate, the more expensive your loan, and the more you’ll have to pay back.
Can you give me an example?
Say that you borrowed $35,000 for school at a 6% interest rate. You’re going to have to pay back $389 per month over 10 years, which adds up to $46,629 in total. The extra $11,629 that makes up the difference between what you borrowed and what you’ll need to pay back is the interest on your loan (the amount you pay for being able to borrow).
You’re not alone
Student loan debt is a reality for many Americans. Take a look at these topline stats:
- Average debt load for new graduates: $37,172
- Average monthly student loan payment: $393
- Number of Americans with student loans: 44 million
- Ratio of graduates with student debt: 3 in 4
- Total amount of student debt in the United States: $1.4 trillion
Track Down Your Loans
Now that you’ve brushed up on the fundamentals, how do you know how much money you’ve borrowed—and who your lenders are?
How do I find my federal loans?
You can find all your federal loans at the National Student Loan Data System (NSLDS) website. If you’ve already added your federal loans to your Summer account, all you have to do is log in to review your loans on your account.
What about my private loans?
You can find all your private loans on your credit report, which you can get for free at FreeCreditReport.com or create an account with Credit Karma. Checking your credit report is a great way to make sure you haven’t forgotten about any loans you took out while in school.
Know Your Servicers
When it comes to paying back loans, your servicer handles all your payments and account details. Let’s get to know your servicer(s) and what they do.
What is a servicer?
A servicer is the company that collects your payments. Sometimes, your lender and servicer are the same institution, but more often than not they’re different. Your lender is the financial institution that provided the loan, whether that’s the government or a bank.
If you have federal loans, you can find your servicer at the National Student Loan Data System (NSLDS) website or, if you uploaded your loans to your Summer account, you can find your servicer there.
Here is a list of the largest federal loan servicers:
- FedLoan Servicing (PHEAA)
- Granite State (GSMR)
- Great Lakes Educational Loan Services
- OSLA Servicing
If you have private loans, you can find your servicer by checking with your lender. If your loans are ever moved to a different servicer, you should receive an email or letter letting you know which servicer will handle your loans going forward and when the transfer will go into effect.
Stay in touch with your servicer
Whenever any of your contact information changes, make sure to let your servicer know. That way, they can keep updated on any developments with your loans.
Know When and How Much to Pay
The best way to make sure you never fall behind on your loans is by keeping up to date on what you owe each month and when you have to make your payments.
First, check to see if your loans are in a grace period
After you leave school, your loans are in what’s called a “grace period.” That means you don’t need to make a payment on your loans right away.
- If you have federal Direct Loans, you have a 6-month grace period.
- With federal Perkins Loans, you have a 9-month grace period.
- For private loans, you’ll typically have a grace period between 6 and 9 months, but you should check with your servicer so you know the exact dates.
- If you are or were a graduate student and have undergraduate loans, your undergraduate loans don’t have a grace period. You’ll have to start repayment as soon as you finish school.
Find your monthly payment
Your servicer will tell you how much you owe each month. If you have federal loans, you’re automatically placed in a 10-year standard repayment plan. Four months after you leave school, you have the option of enrolling in a government repayment plan that lowers your monthly payment. This is called income-driven repayment (IDR), and Summer will let you know when the time comes to see if it’s a good fit for you. You also have the option to select an IDR plan during exit counseling, which is a requirement for federal student loans.
For private loans, your monthly payment depends on what the terms of your loan were when you took it out. Check with your servicer to find out how much you’ll need to pay each month.
Set up automatic payments
If you have enough money in the bank (and your servicer allows it), setting up automatic monthly payments, also known as auto-debit or direct debit, is a great way to make sure you never miss a payment. Most servicers will even give you a 0.25% interest rate reduction if you set up auto-payments, which can save you up to thousands of dollars in the long run.
Set up calendar reminders
Once you know when you have to start repaying your loans, set up recurring calendar reminders—whether that’s a note on the calendar on your wall or on your favorite calendar app—so that you never fall behind.
If You Can’t Make Your Payment
Missing a loan payment can really hurt your finances. It can damage your credit score, which can hinder your ability to get a car or rent an apartment. While other forms of debt can be discharged via bankruptcy, it’s nearly impossible to get rid of your student loans (as much as you might wish you could) without paying them off or receiving forgiveness. But don’t worry: there are ways to make your monthly payments more manageable.
What if I think I’m going to miss a payment?
First, it’s important to be proactive when it comes to your loans; don’t wait to miss a payment before taking action. If you don’t think you’ll be able to make a monthly payment on your federal loans, consider income-driven repayment (IDR). IDR is a repayment plan for federal loans that gives borrowers a more affordable monthly payment in line with their income. If you don’t have a job right now, you could even lower your monthly payment to $0 per month. Summer’s free payment estimator tool can help calculate your estimated payment in an income-driven repayment plan.
There’s also deferment and forbearance, which allow you to temporarily pause payment on your federal and/or private loans. These options could make your loan balance grow, but that’s better than dealing with the negative credit impact of missing a payment.
Tips To Save Money
Did you know that you could save money while making payments on your loans? Here are a few tips for conserving your cash:
Pay on time to save
If you have federal loans and make your first 12 monthly payments on time, you could get a rebate on the amount you borrowed. For federal Direct Loans, the rebate is 0.5%. For federal Direct Grad PLUS loans, you could get a rebate of 1.5%. That’s money back in your bank account, which is always awesome.
Pay down accrued interest before you enter repayment
If your loans accrue interest while you’re in school and you don’t pay it off, you’ll have what’s called capitalized interest. Essentially, that means that you’ll be paying interest on interest, which could greatly increase the cost of your loan in the long run.
Pay off your high-interest loans first
If you can’t make payments on all of your loans, you should generally pay off your highest-interest loans first. If you’re ever in this situation, make sure to contact your servicer to see if they can find a payment plan that works better for you.
Overpay on your loans if you can
Just received a bonus at work or some extra birthday money from Grandma? It’s a good idea to contact your servicer to let them know you’d like to make an extra payment on your loans and apply it to the principal (otherwise it will go toward the interest). If you have federal loans, though, you should only overpay if you’re not enrolled in an income-driven repayment plan.
Refinancing your loans means getting a new loan that pays off your old loan. People refinance loans to get better terms with the new loan.
If you have federal loans, you should think twice before refinancing as doing so will cause you to lose access to benefits like loan forgiveness programs and IDR. For private loans, you should generally refinance your loans if you qualify; refinancing private loans can give you lower interest rates, which is great since private loan rates tend to be higher than federal loan interest rates—they can even surpass 10%. Summer will stay in touch with you to see if refinancing is a good fit for your unique situation.
Other Helpful Tips
Here are a few more things to know when it comes to paying off your student loans:
Think about consolidation
Consolidation lets you combine all of your loans into one. This lets you make one payment to one servicer instead of paying several different servicers. It’s important to keep in mind, however, that consolidating a federal loan could keep you from taking advantage of some of the benefits federal loans offer, like lowering your monthly payments or even pausing your payments.
Watch out for scams
There are tons of student loan relief scams out there, so make sure to keep an eye out and avoid them like the plague. Any government program for loan repayment is free for you to enroll in, so you should never need to pay a third party to help you get into these programs.
Find out about employer contributions
Check with your job to see if they contribute to paying down your student loans. If you’re negotiating a job offer, ask your potential employer if making contributions is something they’re willing to do.
Get your tax benefits
You can take a student loan interest rate deduction on your taxes of up to $2,500. If you’ve got an accountant your work with for your taxes, make sure you check with them about getting any deductions you can. Tools like TurboTax can also help you get these deductions.