So, you graduated college, and now you have a degree, a job and mounds of student loan debt. You’re not alone. Student loans can seem daunting and you may have to do more than cut out a Starbucks run here or there, but student loans do not have to take over your life! Understanding your student loans is the best way to conquer them. Here are some common student loan repayment questions and answers.
When are my first student loan payments due?
This depends on the type of loan. Most federal student loans have a six-month grace period. This means, for the first six months after graduation or leaving school, you will not need to make loan payments. In addition, many private loan lenders offer a similar automatic deferment period, sometimes called a separation period, after college. However, this is not the case for all loans. Private loans that required full principal and interest payments or interest-only payments throughout college usually don’t have a separation period.
You may have loans with different requirements. Check your promissory notes or credit agreements to see if you have a grace or separation period. It’s very important to understand when your first payment comes due for each loan. If you don’t know or don’t have your original loan documents, call your lender or loan servicer. This is also a good time to ask what your minimum monthly payment is if you don’t already know. If possible, it’s a good idea to begin making payments of some amount during your grace period to save money and time in repayment. Being prepared with this information will give you time to plan ahead so you don’t miss your first payment.
How do I start paying off my student loans?
Starting something brand new, like paying off loans, can be very overwhelming. If you have a variety of student loans, figuring out who to pay and how much you owe is even more complicated. Like many students, you may have taken out both private and federal student loans with different terms.
Once you’re no longer in your grace period, the first step to managing your loans is organizing and understanding each loan you have. To begin, create an accurate list of all your loans, including interest rates, the repayment term length, the minimum monthly payment amount, and the lenders’ or loan servicers’ contact information. You may want to keep track of this information in a notebook or spreadsheet that you can easily access for reference. If you’re not sure if your loans are private or federal, don’t worry, you are not alone.
Some common types of federal loans include:
- Stafford Loans (subsidized or unsubsidized)
- Perkins Loans
- Federal Direct Loans (subsidized or unsubsidized)
- Parent PLUS Loans
- Grad PLUS Loans
How much time do I have to pay off my student loans?
This depends on the repayment terms of your loans. Most federal student loans have repayment terms of 10 years with longer terms available for larger balances. Private student loan repayment terms vary by lender but generally are between 10 and 20 years.
In addition, there are different repayment plan options. Standard repayment plans usually require consistent monthly payment amounts, depending on if the loan’s interest rate is fixed or variable, and generally help you pay the least amount of interest over the life of the loan. Graduated repayment plans start with a lower payment amount that gradually increases over time. The graduated plan can be helpful for those just starting in their careers with limited incomes. Remember, however, you will be paying more interest on a graduated repayment plan, so if you need to use this type of plan, any extra payments you can make will help decrease the overall amount you will have to pay over time.
If you’d like to pay off your loans sooner, the good news is, just because your repayment term is for 10 years doesn’t mean it has to take you that long! Budgeting will help you save money in the long run so you can work on paying your loans off sooner.
How do I budget for my student loans?
This is exactly the right question to ask! To have the best possible handle on your loans, it’s necessary to budget around your loans. Start with determining your monthly income and subtracting your minimum monthly student loan payment amounts. This will give you a sense of how much money you have left over for other expenses and entertainment. You can use an online monthly budget calculator so you know where your money is going each month.
Making your budget balance may take a few tries. If you come in negative, you’ll have to adjust your expenses or develop a plan for more income. Saving is important, but don’t forget to budget a little bit of money for fun in your life.
Which student loans should I pay off first?
You should always pay your minimum monthly payments on time for every loan. If you have extra money to put toward student loan payments, it’s best to put that extra toward the loans with the highest rates first. Loans with high interest rates will cost you the most money in the long run. If those rates are also variable, you may want to focus on those too as interest rates in general have been rising over the last year and that is impacting variable rates. If you have a mix of private, subsidized and unsubsidized loans, PLUS or Grad PLUS loans, determine which loans have the highest rates or balances and focus extra payments to those first.
How do I save and pay off my student loans? Which should I do first?
If you have money left over after paying your minimum monthly payments, you might want to split it between savings and extra loan payments. Applying additional money above your minimum payment amount will help pay your loans off quicker. While it’s important to pay off loans, especially high interest loans, it is also a good idea to have a safety net for emergencies. Work on building an emergency fund that covers three to six months of expenses.
Also, consider any big events or purchases that are coming up in your life as they may shift your priorities. If you are getting married or want to buy a house, make sure you start to budget for these future expenses.
How do I save money for retirement while paying off student loans?
The best way to save money for retirement is to take advantage of employer-sponsored retirement programs. If your company offers 401(k) with match, you basically earn free money simply by contributing. Most financial experts recommend that you contribute at least as much as your employer will match to maximize money going toward retirement.
Can I buy a house if I have student loans?
Mortgage lenders generally look at your credit score and debt-to-income ratio (DTI) and consider your down payment when determining whether to approve an application, so focus on these areas to make yourself an attractive candidate for lending.
A high DTI can make it harder to obtain a mortgage. One way to lower your debt-to-income ratio while you have student loans is to pay off other types of debt such as high-interest credit cards or car loans.
While you may not be able to purchase your dream home just yet, begin by looking at starter homes that are within your means and start saving for your down payment. You may also want to consider government programs that help first-time home buyers and individuals who want to buy a home but are struggling with student loan debt.
How do I lower my student loan payments?
If you have private student loans, or a mix of federal and private, you may be able to lower your monthly payments by refinancing. While you may need a creditworthy cosigner if you haven’t established much credit, refinancing can be worth it in savings. The federal government also offers a consolidation program for federal student loans only, although it doesn’t typically lower interest rates as the existing rates are instead averaged.
By consolidating your loans and refinancing, you may be eligible for a lower interest rate that can save you thousands of dollars, so you have more money to live your life. To find out if you prequalify for refinancing with Iowa Student Loan, complete our simple pre-qualification process!