Recent Graduates Guide

Loan Basics 101

Time to learn a few key ideas that’ll help you through the rest of the process. 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
Here are some stats about student loan borrowers:

  • 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

So how do you know how much money you’ve borrowed—and who your lenders are? We can help.

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, then you’re already finished with this step and can review your loans on your account.

What about my private loans?
You can find all your private loans on your credit report. You can get a free credit report here, which should list all of your loans. It’s a great way to make sure you’re not leaving out any of your loans.

Know Your Servicers

When it comes to paying back loans, your servicer handles all your payments and account details. It’s time to get to know your servicer(s) and what they do.

What is a servicer?
Your 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:

  • CornerStone
  • FedLoan Servicing (PHEAA)
  • Granite State (GSMR)
  • Great Lakes Educational Loan Services
  • HESC/Edfinancial
  • MOHELA
  • Navient
  • Nelnet
  • 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.

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 you up to date on anything that changes with your loans.

Know When and How Much to Pay

Keeping up to date on what you owe each month and when you have to make payments is the best way to make sure you never fall behind.

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 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 ever think that you’re going to miss a payment, consider income-driven repayment (IDR) or reach out to your servicer right away.

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. Summer will let you know when the time comes to see if it’s a good fit for you.

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 fall behind. 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 miss a payment.

 

If You Can’t Make Your Payment

Missing a payment can really hurt. It can damage your credit score, which can mess up things like getting a car or renting an apartment. It’s nearly impossible to get rid of your student loans (as much as you might wish you could), so it’s best to stay on top of them. But don’t worry: we can help with that.

What if I think I’m going to miss a payment?
If you don’t think you’ll be able to make a monthly payment, consider income-driven repayment (IDR) as an option, or there are options known as deferment and forbearance that can let you to temporarily pause payment on your loans. These options could make your loan balance grow, but it’s a lot better than missing a payment, which could hurt you more in the long run. Summer’s free payment estimator tool can help calculate your estimated payment in an income-driven repayment plan. It’s worth staying proactive when it comes to your loans; don’t wait to miss a payment before taking action.

More options for federal loans
If you have federal loans, you have got more options than people with private loans if you run into trouble keeping up with your monthly payments. You can enroll in programs that could help you lower your monthly payments so you don’t miss any. If you don’t have a job right now, you could even lower your monthly payment to $0 per month. Keep your information up to date with Summer, and we’ll help make sure you never miss a payment.

 

Tips To Save Money

There are options that could help you save money while you make 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. Awesome!

Pay down accrued interest before you enter repayment
If your loans accrue interest while you are 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. Summer will let you know know when it’s time to pay down your accrued interest so you can make sure you’re maximizing your savings.

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. If you have federal loans, though, you should only overpay if you’re not enrolled in an income-driven repayment plan.

Consider refinancing
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.

For federal loans, you should think twice before refinancing, which will cause you to lose the federal loan benefits like loan forgiveness programs and lower monthly payments if you run into trouble. For private loans, you should generally refinance your loans if you qualify. Summer will stay in touch with you to see if refinancing is a good fit for you.

 

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 to 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.