After graduation and short grace period, students must begin paying their student loans. For many, this figure may reach into the tens of thousands of dollars. If the situation is not managed, this debt can become a monkey on the back of the new career professional. Getting started on the right foot in terms of repayment will make all the difference.
You will need:
• Certified letter containing federal loan amount and repayment schedule
• Student loan promissory notes
• Computer with Internet connection
• Exit counseling from college or university
• Federal income tax return form
Step 1: The grace period for the Federal Stafford Loan Federal Family Education Loan (FEEL) or Direct Loan Program is six months. Federal Perkins Loans have a nine-month grace period. Direct PLUS and Parent PLUS Loan borrowers may also have a six-month grace period, in certain situations. During the grace period look for a certified letter that contains the amount due and repayment schedule.
Step 2: In the meantime, locate the paperwork you kept regarding your loans. Log into the National Student Loan Data System and find out what is owed and make sure it corresponds with all promissory notes you signed.
Step 3: Contact the financial aid office at the college or university to receive exit counseling. Structure this as an in-person visit and get information regarding any nonfederal, private loans you received so you can contact these lenders.
Step 4: Prior to the end of each grace period, work with each lender to establish a repayment plan. Standard repayment is the most direct way to pay off the loan by submitting a fixed payment of at least $50 per month. Students have ten years to pay under this method. Extended repayment offers a 12 to 30 year repayment period, based on amount owed. This is convenient for students with large loans but it does accrue extra interest compared to standard repayment.
Graduated repayment involves small payments during the first few years and then larger payments. Initially, students will pay the greater of half the standard repayment amount or interest only. Eventually, they will pay principal and interest, up to 1.5 times the standard plan monthly payment. Income-sensitive/contingent payments involve having the monthly payments adjusted each year, based on the amount owed, interest rate, family size, and adjusted gross income.
Step 5: If your financial situation changes during the repayment period, you can switch payment plans. Keep in mind that all loans do not have the same repayment plan options and some of them limit the number of times the repayment plan can be switched.
Step 5: Negotiate with lenders to have administrative and origination fees reduced. Ask if a lower interest rate will be offered for paying online or via automatic deduction.
Step 6: Deduct a maximum of $2,500 of your student loan interest from your tax return each year.