The dreaded student loan. It’s something college students all across the country worry about even before they graduate.
Between all of the different student loan options and repayment plans, it can be challenging to know where to begin paying them off.
That’s why we put together a quick guide to arm you with the information you need to pay off your student loans in a way that works for you.
Get Your Budgets Ready
Now for the fun part! (Just kidding).
You know what loans you have and are aware of the options available. Now what? It’s time to kick it into high gear.
These easy steps will help you feel comfortable about stepping into the real world and being financially responsible for your loans. It may not seem like fun, but I promise you’ll feel empowered by knowledge and organization!
Step 1: Know what loans you have and who they’re processed through
Look through your paperwork, check your mail, call your parents, or get on the phone with your financial aid office.
By now, you’ve probably received tons of mail from your student loan provider. So, chances are you already know what kind of loan you have.
If not, here are a few of the most common student loans that you might be dealing with.
- Direct subsidized federal loan
- Direct unsubsidized federal loans
- Direct PLUS loans
- Private Student Loan
Knowing which loans you have, especially whether they’re federal or private, is the first step to hopping on the right plan.
Once you know what loans you have and who you need to talk to, you can move onto the next step.
Step 2: Talk to your loan provider about payment plans
This is an especially significant step to tackle while you’re still in school or during the six month grace period. Find out what all your payment plan options are. Here are the two most common options for federal student loans:
- Standard Repayment Plan – Equal payments over 10 years
- Income-Driven Repayment Plan – Payments consist of 10-20% of your discretionary income for up to 20 years
Call (we know, you hate the phone but do it anyway) your loan provider to get a sense of what your payment will be on each plan. If you’re not ready for a phone call, try out the loan repayment calculator here.
Make sure to keep a spreadsheet or notepad full of the information you get about payment amounts and interest. This will be helpful as you factor in your budget and overall pay-off amount.
Now that you know the tentative amounts you could be paying, sit down to work on your budget.
Step 3: Budget for your student loan payments
You may or may not know exactly how much money you’re going to be making. Hopefully, you have a general idea based on previous part-time jobs or discussions with other students about their first fulltime roles.
Take that estimate and start to build your budget. Once you have all your living expenses in there, plug in each payment plan option. This exercise will give you an idea of how much each plan will affect your budget and what you can afford.
Budgeting is going to be different for everyone. But seeing the payment plan in action can help you make an educated decision on which plan works best for you.
Step 4: Decide on a payment plan
Now that you have an idea of what you can afford to hop on the phone with your student loan provider again. Tell them which payment plan you’d prefer and get it set-up so that you’re ready to go as soon as it’s time to start making payments.
Step 5: Start paying your loans
This might seem simple, but it’s easy to become frustrated with your student loan payments and stop paying them. That is a huge mistake as it can keep you from income-driven repayment in the future.
If you start to struggle, call your loan provider and ask them to work with you. Especially with federal loans, they’d usually rather help you out than watch you go into default.
Be honest with yourself about your financial situation. If you can pay a little extra to pay your loan down faster, do it. If you need a little extra help, ask for it.
Everyone’s student loan situation is different, but so many of your peers are in the same boat, so don’t let it get the best of you.
These steps will help you get to a place where you’re comfortable with what you’re paying, setting you up for success in the process.
Student loans are a necessary evil. Luckily, they’re one we can all defeat in the end.