Congratulations!!! You’ve taken your last exam, written your last essay, and taken out your last student loan. Now that you’ve graduated, the logistical questions of paying back those student loans are starting to come up. No worries! In today’s post you’ll learn how to handle your student loans now that you’re finished with college.
Estimated read time ~8 min. Estimated watch time at 1.5x ~6 min.
What to expect right after graduation.
Federal loans and private loans might be treated differently. Federal student loans have a six month “grace period”. During this period you don’t have to make payments on your student loans. If you haven’t found work yet, this period is designed for you. If you’re already working, you may want to start making payments; if you’re planning to work toward loan forgiveness, you may want to apply for a Direct Consolidation Loan to remove your loans from the grace period so your early payments count toward the number needed for forgiveness.
Different lenders handle private student loans differently. Yours may offer a grace period or they may start collecting payments soon after graduation. Be sure to contact your lender to find out which it is so you don’t miss any payments.
Take an honest look at your debt and know your loans.
Student loans invoke fear of the unknown like nothing else. I mean, we all know that 70% of today’s graduates have debt, but how many of your friends have you actually discussed real numbers and real repayment strategies with? I bet it’s almost zero. There’s a real sense of shame that accompanies student loan debt, which contributes to fear and leads to avoidance.
Don’t follow that path. Look your loans right in the eye, know exactly how much you owe and who your servicers are. Learn which types of loans you have, federal or private and differentiate among federal loan types (Pell, FFEL, Direct, Grad PLUS) then proceed to the next section. Repayable’s Roadmap to Understanding Your Student Loans has everything you need.
Choose your repayment plan.
Exit counseling for student loans is…. lacking in depth at best. That means you may leave college with no real understand of your options and the advantages or disadvantages of each plan. I recommend checking out this post Picking the Right Repayment Plan for an in-depth review of your options.
In general, income-driven plans are best for anyone seeking Public Service Loan Forgiveness (PSLF), Income-Driven Loan Forgiveness (IDLF), or who can’t afford a higher monthly payment. The biggest downside to these repayment plans is that lower payments lead to longer repayment terms which means you’ll pay significantly more interest.
If your goal is to repay your debt quickly, the 10 year standard plan is a solid option. This plan will help you pay off your loans quickly and with the least amount of interest. The biggest drawback to this plan is that the monthly payment can be incredibly high, to the point of being unaffordable for some borrowers.
When it comes to the Graduated Repayment plan or Extended Repayment plan, I tend not to recommend either of these options. Under both plans you will pay more interest than another plan. The graduated repayment plan has payment increases every two years which often become unaffordable for borrowers. And because payments start low under this plan, sometimes the payments only cover the interest on the loan and don’t actually reduce the balance until the payment increases. One of the four income-driven plans is likely a better fit for a borrower struggling to afford monthly payments.
Consider your loan forgiveness options.
Some borrowers are interested in pursuing loan forgiveness after graduation, but for others the path to loan forgiveness is too far away. I suggest starting your exploration by reading Three Major Types of Loan Forgiveness.
Here’s a quick overview of the three largest federal student loan forgiveness programs.
Public Service Loan Forgiveness (PSLF). Forgives the entire remaining balance of student loan debt tax free after 120 months of eligible payments while working full-time for an eligible employer.
Teacher Loan Forgiveness (TLF). Forgives either $5,000 or $17,500 of undergraduate student loan debt tax free after five consecutive years of serving as a high quality teacher in a qualifying low-income school district.
Income-Driven Loan Forgiveness (IDLF). Forgives the remaining balance of student loan debt after 20-25 years of income-driven repayment. The forgiven amount is taxable.
What about refinancing?
With all the podcast ads you’ve probably listened to the siren song of refinancing companies promising to save you thousands of dollars. Refinancing can be a good option for some borrowers and detrimental to others. If you’re considering refinancing I recommend starting with the Refinancing Strategy Guide.
A couple of quick points about refinancing.
It’s the only way to lower your interest rate.
Best suited to borrowers with good to excellent credit (which you may not have yet had a chance to build).
Best for borrowers with high income relative to debt.
Best for borrowers with predictable income.
Privatizes federal student loans so not for borrowers pursuing one of the three federal loan forgiveness programs.
Can be particularly advantageous for lowering the interest rate on private student loans.
Take a moment to congratulate yourself.
You’ve done something awesome and finished your college education. You’ve mastered exam taking and you’re going to master student loan repayment too. Repayable is all about empowerment with clear actionable information you can use.
Now that you’ve made it through the starter guide to approaching your student loan repayment after graduation you’re set to take charge of your debt. If you have any questions, don’t hesitate to reach out. Join the community on Instagram, YouTube, and the Repayable Facebook Page.
What do you need to know about the two most common types of federal student loans? Today we’re going to talk about the differences between Direct subsidized and unsubsidized loans. Read on for more.
Estimated read time ~ 5 min. Estimated watch time at 1.5x ~3 min.
They’re both federal student loans
Both subsidized and unsubsidized student loans are made by the department of education. Both types of student loans qualify for Public Service Loan Forgiveness (PSLF) and Income-Driven Loan Forgiveness (IDLF). While they both qualify for Teacher Loan Forgiveness (TLF), remember that only student loans used for undergraduate education are eligible for TLF.
Interest is handled differently
Let’s start by talking about how interest is handled for Direct subsidized student loans. During certain times interest that accumulates is paid for by the Department of Education. Here are some examples of when you won’t be responsible for paying the interest on your subsidized student loans:
You’re enrolled in courses at least half time
You’re in the grace period (the first six months after graduation) and not a Direct Loan borrower between July 1, 2012, and July 1, 2014
You’re in deferment (a postponement of loan payments)
If you have Direct Unsubsidized student loans, you’re always responsible for paying the interest. That means if you choose not to pay, such as when you’re actively in school or in the grace period, the interest will capitalize. Capitalization means any interest you haven’t paid gets added to your principal balance and you pay interest on the new, larger, balance.
Once you’re actively in student loan repayment, interest is treated the same between subsidized and unsubsidized student loans and capitalizes on itself.
There are different maximum borrowing limits
The maximum total (lifetime) amount of subsidized student loans you can borrow is $23,000 for undergraduate students and up to $65,000 for independent graduate/professional students or dependent students whose parents are unable to get PLUS loans*. It should be noted that graduate and professional students are no longer eligible for Direct subsidized student loans after July 1 2012, so the graduate limits are including previous courses of study.
Unsubsidized student loans are available according to remaining aggregate limits. You can find out more details about those limits here.
Demonstrating financial need
In order to get a Direct subsidized loan, you must demonstrate financial need. Unsubsidized loans are available regardless of financial need. Remember, in order to get any type of federal aid, including federal student loans such as these, you have to complete the FAFSA.
What type of student loans have you borrowed to attend college? Let me know in the comments below or on the Repayable Facebook Page.
Paying off your student loans is one of those things you want to do as efficiently as possible. No one wants to spend one extra penny or one extra day paying off their loans because they took an approach that wasn’t right for them. In today’s post I’ll talk about how to decide which student loans to pay off first. Estimated read & watch time ~3.5 minutes.
Extra payments mean decisions
The only way to pay off specific student loans early is by making extra payments. Making your minimum monthly payment only sets you up to pay off your student loans according to the terms of your repayment plan (federal loans) or loan agreement (private loans). While reading this article, it’s important to note that these instructions are about what to do with your extra payments each month.
Start with your end goal
What is the final outcome you want for your student loans? Is it that you pay them off as quickly as possible, get student loan forgiveness, or pay them off gradually over time so you don’t have as much financial pressure day to day?
Your goal is important in determining which loans you tackle first. For example, if you’re working toward PSLF, but have private student loans, you’ll want to pay off your private student loans first.
If you’re paying off quickly
If you’re a borrower who wants to pay back your student loans as quickly as possible you’ll want to target your highest interest, highest balance loan first. It’s the most expensive loan you have, with the highest interest rate, so tackling it first with extra payments will make the most significant financial impact.
If you’re counting on loan forgiveness
If you’re counting on any of the three big federal student loan forgiveness plans (PSLF, Teacher Loan Forgiveness, or Income-driven Loan Forgiveness), pay off private student loans first. These loans aren’t eligible for loan forgiveness so you’ll want to pay them off as quickly as you can on your own to minimize the interest you’ll pay.
If you’re planning on Teacher Loan Forgiveness, you’ll want to pay private student loans first, then any graduate student loans you may have. These student loans aren’t eligible for forgiveness under Teacher Loan Forgiveness.
If you want small achievable goals
Another strategy is to use the “snowball method” to pay back your loans. With this strategy you would pay off the smallest student loan first to give yourself an early victory, then target the next smallest, and so on and so forth. Some borrowers find this strategy to help keep them motivated to make extra payments and tackle their loans.
This isn’t my favorite strategy because it’s not the most efficient use of your extra payments, but I definitely understand the desire to keep the motivation coming and get some wins early. My compromise for this strategy is to still target your highest interest loans first, but to pick the smallest of those higher interest loans to start with.
Private student loans are good early targets
Private student loans often have the highest interest rates that are sometimes variable. That makes private student loans good early targets for extra payments. Private student loans also don’t carry the same federal borrower protections, access to flexible repayment plans, and access to the three major federal loan forgiveness options. There’s nothing to lose and only interest savings to gain by paying private student loans back early.
Refinancing is an important consideration for borrowers with private student loans. If you’re hoping to lower your interest rate and pay of your student loan debt sooner refinancing may be a good option for you because the student loans are already private so there’s no risk of losing federal benefits. If you want to learn more about refinancing you can read more here.
Are you targeting specific student loans on your repayment journey? Let me know in the comments below or on the Repayable Facebook Page.
Whether you’re the kind of person who likes to make resolutions starting the first of the year or not, now is a good time to re-evaluate your student loan repayment strategy. It’s easy to pick a strategy and let it sit on autopilot. Today’s post is going to cover the basic student loan repayment options and help you evaluate your current strategy.
Estimated read time ~ 6 minutes. Estimated watch time at 1.5x ~4 minutes.
Evaluate Your Repayment Strategy
There are three things to consider when assessing if your repayment strategy is right for you.
How affordable is your current strategy?
Are your monthly payments easy to make, sometimes easy sometimes a stretch, or difficult to afford?
Does your current strategy match your student loan goals?
Are you wanting to pursue loan forgiveness, pay off your loans as quickly as possible, or pay as little as possible each month?
How do you feel about your current strategy?
Do you feel indifferent, empowered, or stressed out about your current strategy?
If your current strategy isn’t affordable for you and is stressing you out, it’s obvious it’s time to make a change. But if your payments are easy to make and you’re feeling indifferent it’s just as important to make a change.
Repayment Plans
The right repayment plan is the very first step to assess. You have the most control over your repayment plan choice when you have federal student loans. All of the repayment plan choices discussed below are for federal student loans. You can choose from income-driven plans to make your monthly payment more affordable and as one part of making eligible payments toward PSLF or Income-driven loan forgiveness.
If your payments are unaffordable, an income-driven plan can lower your monthly payment. The downside of an income-driven plan is that the longer you take to repay your student loans, the more interest you’ll pay. Ultimately if you can’t afford your monthly payments, that may be a worthwhile tradeoff.
However if you can easily afford your monthly payments, it makes sense to be on an aggressive repayment strategy such as the 10-year standard repayment plan. Under that plan you’ll make a fixed monthly payment and repay the entire balance of your student loans after 10 years. You’ll pay the least amount of interest under this plan.
For some borrowers student loan forgiveness is a very appealing opportunity. Right now, the most talked about loan forgiveness option is Public Service Loan Forgiveness (PSLF). In general student loan forgiveness programs are very specific in their eligibility criteria and the three federal programs only forgive federal student loans.
Here’s a quick breakdown of the three major federal student loan forgiveness options.
First up is PSLF, this program is designed to forgive the remaining student loan balance for borrowers working in public service jobs or at non-profit, government, or tribal organizations after 120 eligible payments are made (10 years minimum).
Next is Teacher Loan Forgiveness, designed to forgive up to $17,500 for specific highly qualified teachers in low-income school districts after 5 years of teaching.
Lastly is income-driven loan forgiveness, an option available to potentially everyone with federal student loans. This option forgives the remaining balance of student loans after 20-25 years of income-driven monthly payments.
You can read more about the different loan forgiveness options here.
Student Loan Refinancing
Finally, an option that suits the repayers with private student loans, federal student loans, or a mix of both. Refinancing is the only option that can potentially lower a borrowers interest rate. Here are a few situations to keep in mind.
If you have federal student loans, refinancing your student loans makes them private loans and ineligible for federal loan forgiveness programs and federal student loan benefits forever. You can’t make refinanced student loans federal loans ever again.
If you have private student loans, refinancing doesn’t carry much risk. If you can get a lower interest rate on the student loans, especially if you can get a fixed interest rate that’s lower, you’ve got the green light. You won’t give up borrower protections because you didn’t really have many to start with.
If you have a mix of student loan types, you may want to consider refinancing only the private student loans and leaving the federal student loans as they are. It all depends on your unique situation.
After looking at your student loans do you need a new repayment strategy this year or are you on track smashing out your goals? Let me know in the comments below or on the Repayable Facebook Page.
You’ve finished school and you’re a few weeks into residency. While it’s awesome to be finally practicing what you went to school so long for, it’s pretty likely you racked up some major student loan debt to do it. The problem is, as a resident, you don’t make even close to enough money to pay back all that debt like you will once you’re finally staff. So what’s a resident to do when you want to stay on top of your student loan debt and set yourself up for success when you graduate residency?
After reading or watching today’s post you’ll know exactly what you can do with your student loans to set yourself up for repayment success when you do finally finish residency. Estimated read time ~ 6 minutes estimated watch time at 1.5x speed ~4 minutes.
Get started.
The first thing you’ll need to do to figure out what to do with your student loans is to learn and acknowledge the basics of your debt. Answer these three questions and move on to the next step.
What type of student loans do you have? (Federal, private, both)
How much student loan debt do you owe?
Are you a resident at a government on non-profit institution? (i.e. a VA or a 501c3 hospital?)
Option 1: Public Service Loan Forgiveness (PSLF)
One of the most common options residents choose to pursue is PSLF. PSLF forgives the remaining balance of Federal student loan debt after a borrower makes 120 eligible monthly payments on an income-driven repayment plan while employed full-time for an eligible employer (government or 501c3 organization).
This can be a good option for residents that have significant amounts of Federal student loan debt. Remember, loan forgiveness options only work for federal student loans so any private student loan balances will still need to be repaid in full.
If this is the route you’re planning to go here’s the most efficient way to get it done:
Consolidate your loans into a Direct Consolidation Loan right now. This allows you to enter repayment right away instead of wasting six months in the grace period. If you don’t do this you’ll accumulate interest in the grace period and won’t be making an eligible payments toward loan forgiveness so will delay your forgiveness by six months.
Enroll in your income-driven repayment plan of choice. If you qualify, the PAYE plan is the best because the monthly payment is 10% of discretionary income and never more than the payment under the 10 year standard plan.
Start making payments as soon as your loan is consolidated.
Option 2: Income-Driven Repayment, No Forgiveness
Maybe you’ve decided loan forgiveness isn’t for you because you have a lot of private student loan debt or not quite enough federal student loan debt to make forgiveness worth it. Or maybe you don’t like the idea of a loan forgiveness program that can be eliminated by a congressional vote. Whatever the reason, you’re not planning on using student loan forgiveness.
You want to avoid entering forbearance on your student loans. As a resident, you qualify for this option. The problem with forbearance is that interest will continue to accrue on your student loans the entire time you’re not making payments. That interest can cost you thousands of dollars each year!
For most residents, your best bet is going to be to enroll in an income-driven repayment plan. That way you can make low monthly payments and at least pay off some interest. You also have the option to make extra payments each month if you can afford it, but don’t have the pressure of a high monthly payment on a resident salary.
If you have private student loans your options may look different. You’ll want to talk directly to the servicer of your private student loans to arrange a repayment strategy that works for you during residency. Private loan servicers may encourage forbearance rather than offering up a lower monthly payment option. If this is the case ask them if you’re still able to make monthly payments while your loans are in forbearance. That way you can work to pay down your debt without the pressure of a high monthly payment.
When you’re almost finished with residency.
If you’re not considering loan forgiveness you may want to consider refinancing once you’re getting paid market salary for a post-residency graduate. If that’s something you’re interested in check out this post, which is all about whether refinancing during residency is a good choice or not.
Are you a resident trying to figure out what to do with your student loans? Leave me a comment below or send me an email jeni@repayable.org having been a resident myself I’m always happy to help other young professionals start off strong with their student loans!
Are you ready to change up your federal student loan repayment plan? If so, today’s post is for you. This three step walk through will help you switch to a student loan repayment plan that works for you.
Estimated read time ~3 minutes.
Step 1 Choose Your Repayment Plan
Before you call anyone, it’s worth your time to figure out what repayment plan works the best for you. Loan servicers can help but it’s better and will speed up the process if you already know what you want. Last week’s post is all about helping you decide so check it out here and come back.
If you’re considering loan forgiveness or having trouble making your payments one of the income-driven plans is for you.
If you want to pay debt down quickly the 10 year standard or refinancing to private loans for a lower interest rate are your best options.
If you want to simplify many individual loans into one loan and haven’t made any eligible payments toward loan forgiveness, consolidation might be right for you.
Step 2 Contact Your Loan Servicer
If you don’t know who your loan servicer is you can log in to the National Student Loan Data System (NSLDS) page and it will show how much you owe and who you owe it to. The information in this system can take up to 120 days to update so keep in mind that it may not show all loans if you’re still borrowing.
When you contact your loan servicer let them know which plan you’re interested in and they will help you switch plans. Remember, your servicer has a responsibility to help you switch repayment plans, it’s part of servicing federal student loans.
Step 3 Submit Any Necessary Paperwork
If you’re looking to switch to an income-driven repayment plan you’ll need to submit an application for income-driven repayment. The application uses your income information to determine your monthly payment. You can find the application here, it takes less than 10 minutes to complete.
If you’re hoping to consolidate your student loans there’s an application for that too. You can find that application here, it takes less than 10 minutes to complete.
A note about fees. There are no fees to change repayment plans or consolidate your loans. Anyone that charges you a fee is a scam, work with your loan servicer directly.
If you’ve changed your student loan repayment plan did it take you as long as you thought? Let me know in the comments below or on the Repayable Facebook Page.
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