It’s May. It’s Spring. The weather is warm. Summer is near. And millions of students are graduating from college and grad school. Most have at least some student loans. This is certainly an exciting time, but don’t let your student loan obligations surprise you in a few months. There are important things you need to know now so that you are prepared to manage your debt burden in the months ahead.
- How much total student loan debt do you have? Ignorance may be bliss, but now is the time to take stock of how much you owe. If you’ve been in school for awhile, interest may have been accruing on your loans, and the total balance may be higher than you think it is. Don’t wait for the first bill to look at the numbers.
- Which loans are federal, and which loans are private? This is a very important distinction. Federal loans have certain rights and benefits (i.e., deferment, forbearance, forgiveness) that private loans may not have. Private loans also tend to have higher interest rates.
- What are your grace periods? Many student loans (federal and private) have grace periods following graduation. Basically, lenders give you a free pass for a few months after you graduate so that you can find a job and get your finances in order before payments become due. But grace periods are different for every loan. Some are six months. Some are nine months. Some student loans have no grace period at all, and you will be hit with your first bill the month after you graduate- which may catch you by surprise. It is absolutely essential that you figure out how long you have before you start to get billed.
- What is your repayment plan? For many of your loans- and certainly your federal loans- you may be offered several repayment plan options. Lenders usually offer a “standard” plan with equal payments over a 10 or 15 year period. Lenders may also have a “graduated” plan with lower payments now and higher payments later. Or you might be able to choose an income-sensitive plan that takes your earnings into consideration when calculating your payment, but it then drastically stretches out the repayment period. What plan makes the most sense for you, and how much money do you need to budget for your loan obligations each month so that you don’t become delinquent?
- Does consolidation make sense? Consolidation offers several advantages, including a simplified payment and loan management process (see my earlier post on federal loan consolidation). But consolidation is not for everyone, and it’s not for all loans. You may also eliminate your grace periods if you consolidate too soon, because payments become due as soon as your loans are consolidated. Figure out if and when consolidation is right for you.
- What will you do if you are not yet employed? If you’re graduating without a job lined up and your student loans are due, you may be able to postpone your payments for some of your loans. It is crucial that you take steps to do so if you’re in this situation. Otherwise, your loans may become delinquent or even defaulted, and that’s bad news.
- Is loan forgiveness or repayment assistance an option? Start thinking about how to reduce your payments or get some of your loans forgiven. If you work in certain professions, some federal loans may be completely forgiven. For other federal loans, you may be eligible to participate in a program that forgives your debt if you work for a qualifying employer for a certain period of time while making regular payments (see my previous post on the Public Service Loan Forgiveness Program). Some educational institutions also provide repayment assistance to graduates who work in certain public-interest professions. You should be thinking about whether you are eligible for such programs.