by Dani Pascarella, Contributor,
Four million Americans will graduate with a degree from a college or university this school year and more than two-thirds of those grads are expected to leave school with student loan debt.
If you’re one of them, making monthly payments is about to become your new normal. And with the average student loan payment being $393, this fixed cost is going to have a huge impact on your budget.
Before you start stressing, here are six things you should know about your student loans after graduation.
1) They are an investment in your future.
It’s easy to forget how grateful you were for those direct deposits while pursuing your degree. Don’t let your attitude shift to resentment or regret just because it’s time to return the favor.
You took out student loans because you believed there would be a return on your investment. And studies show that the return is there.
Over a lifetime, individuals with a Bachelor’s degree earn 84% more than those with only a high school diploma. That translates to about a million dollars in increased lifetime earnings on average — far more than you took out in debt.
Keep that in mind when repaying the money that got you to where you are today.
2) If you have a grace period and when it ends.
Not all lenders start collecting as soon as you graduate. You may be given a grace period, which typically lasts for a few months. A grace period gives you time to start your job and get financially situated before making payments.
This is great news if you don’t have the money to start paying back your student loans right away. But if you can make payments, you should. Even though payments aren’t due during your grace period, most loans will accrue interest.
Also, starting the repayment process early means you won’t get used to having extra spending money in your checking account each month. Many recent graduates struggle to curb their spending so that they can afford those monthly payments once their grace period ends. Starting your post-grad life with the right spending level is much easier than having to cut spending a few months in.
Find out if you have a grace period and when it ends so that you can take advantage of it.
3) Which repayment plan works best with your budget.
Unlike most debt, you actually have a lot of options when it comes to paying back your student loans. You can choose the plan with the lowest monthly payment, the shortest repayment term, or one that fluctuates with your income.
When assessing what the best plan is for our Wealth Coaching® clients, we take a few things into account. But our most important checkpoint is making sure the payments are manageable in relation to their income and other fixed costs.
The last thing you want to be is strapped for cash because you are on a student loan repayment plan that’s too aggressive. When this happens, people tend to rely on credit cards — and the interest rates on credit cards are usually more than 10% higher than they are on student loans.
It’s important to pick the best repayment option for you and your budget.
4) You can get permission to pause your payments.
There are certain scenarios that allow you to put the repayment process on hold, like if you are unemployed and don’t have the financial means to make payments.
You have the same rights if you continue advancing your education and decide to go to grad school. As long as you are a part-time student, you are not required to make payments until you graduate or fall below part-time status.
If you can’t afford to make payments, call your loan servicer, explain your situation, and they will walk you through all of your options. Most student loan servicers are very flexible and willing to work with you.
5) You can refinance your loans.
If you took out your student loans without reading or understanding the fine print, you may have ended up with a really high interest rate. Fortunately, you aren’t stuck with this daunting percentage forever.
If the interest rates on your loans are high, you can refinance them to save money in interest. Refinancing consists of taking out a new loan with another lender at a lower interest rate to pay off your existing loans.
However, if you have federal student loans then refinancing is not always the best option — even if you are able to get a lower interest rate. Federal loans have special perks like income-based repayment and Public Service Loan Forgiveness that typically aren’t available with private lenders.
Make sure you fully understand the pros and cons of refinancing before you make a decision.
6) If you think you are eligible for forgiveness, fill out your PSLF form ASAP.
If you are employed by a government or nonprofit organization, you may be eligible for student loan forgiveness. If you qualify, the Public Service Loan Forgiveness (PSLF) program will forgive your remaining student loan balance after you make 120 qualifying payments.
You have to meet several requirements to qualify like certifying your work experience and being on the correct repayment plan. If you don’t meet the requirements, you could forfeit your right to forgiveness.
The best way to make sure you are on track is to complete the Department of Education’s Employer Certification Form annually. When you submit the form, your account will be reviewed and you’ll receive a notification that tells you where you stand.
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