The idea of paying off student debt after graduating from college can be overwhelming, but there’s no need to be frightened. With organization, dedication, and discipline, paying down debt is possible. Follow these tips to understand the process of student loan repayment.
Keep Track of Your Loans and Grace Period
Keeping track of your student loans is crucial. Managing the lender, balance, and repayment status is important because these impact your options for loan repayment and forgiveness. Each federal loan and its corresponding repayment status will be listed through the lenders website. If the student loan is private, locate the most recent contract or contact your school for more details. You don’t want to miss you first payment, so be sure to make a reminder for when your grace period (how long you can wait to make your first payment after graduation) ends as they may vary.
Prepay if Possible
To avoid higher interest costs, you can pay more than the required monthly payment. If you can afford to do this every few months, it will decrease the overall cost of the loan in the long run. Be sure to notify your lender that you would like to apply the extra amount to your loan balance to avoid confusion. You can also pay more frequently than once a month, to keep payments continuous. Contact your lender for more information on prepaying.
Set Up a Separate Student Loan Account
It can be helpful to set up a separate account to save just for student loans. Setting aside money each month dedicated to repaying debt will minimize the potential of overspending. You can even set this account up so the money will be moved automatically to repay your debt – further eliminating the risk of spending the money allocated to student loan repayment each month.
Know Where You Are Spending Your Money
Take a look at your overall budget to identify where you have room to cut costs each month. Small changes like making coffee at home or taking public transportation instead of ride sharing will make room for your new student loan monthly payment. Try using PFCU’s Lunch Savings calculator to see the benefits of brown-bagging your lunch now and then. Setting a cash budget for yourself per week is a good way to test out budgeting. Living frugally while getting started repaying your student debt may take some adjusting at first, but you will definitely thank yourself once your student debts are paid off.
Income Based Repayment Plan
Many recent graduates struggle to make student loan payments, especially at the beginning of their careers. Most student loans are eligible for an income based repayment plan which allows borrowers to make more manageable payments on federal loans based on income and family size. These repayment plans extend the terms of the loan, but many include loan forgiveness after the terms have been fulfilled. Federal Student Aid offers four income-driven repayment plans:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Repayment Plan (PAYE Plan)
- Income-Based Repayment Plan (IBR Plan)
- Income-Contingent Repayment Plan (ICR Plan)
Speak to your lender about which option is best for your debt to income ratio.
Set Goals
One way to stay organized when paying off student loans is to set goals. Create a plan, whether it is 3 years, 5 years, or 7 years, so you know when your loans should be paid off. Once you set aside the money and start paying, it will become part of your monthly routine like paying for the electric bill. You can also reward yourself once you complete one of your goals in various ways!
Ultimately, paying off student debt is in your hands. So if you think it might be tough to monitor your spending and cut back when-needed, it is important to learn how to do so, fast. As a recent graduate, you do not want to be paying more than you need to, so prepare to be organized, dedicated, and disciplined. Once all of your student loans are paid off, you will be satisfied.