You were grateful for the student loan that got you your college education and helped land your first big job, but now the bill is coming due and money is tight. Don’t worry, there are many options available to help you better manage your student loans and avoid falling behind. Understanding your repayment options is the first step toward staying on top of your obligations and maintaining financial health in this next stage of life.
Know Your Loan Type
First, you need to know what type of loan you have. There are federal and private loans, and each comes with different payback stipulations and options for managing payments.
- Federal loans. Three main types of federal student loans are available to students and their families. The first two are Direct Subsidized and Direct Unsubsidized Loans, which are awarded directly to the student. These loans are not based on credit, meaning students do not need a cosigner to qualify. The third type is Direct PLUS Loans — these are credit-based loans available to parents as well as graduate and professional students.
- Private loans. Private student loans are issued directly to students by banks or other lending institutions and are based on the borrower’s creditworthiness. In addition to loans for students, there are also Parent Loans, which allow a parent or guardian to borrow money to help cover expenses.
If you have a co-signed loan, keep in mind that your co-signer can face the same credit consequences as you if the loan falls into delinquency.
Many Ways to Repay
Federal student loans offer a broad range of repayment options designed to support whatever circumstances you find yourself in after graduation. Standard loan repayment typically involves fixed monthly installments over a 10-year period, covering both principal and interest. Extended repayment options let you pay off the loan over a longer period — up to 25 years — lowering your monthly payment but increasing the total amount paid in interest over time.
Another option is an income-driven repayment plan, which adjusts payments annually based on income and family size. This type of plan can be especially helpful in the early stages of your career when your income may be lower, as it allows you to manage payments and helps prevent you from falling behind. For private loans, each lender will have their own repayment options, so contact your lender to find out what they have available for your specific loan.
What to Do if You Fall Behind
If you find you’re struggling to make student loan payments, the first thing to do is contact your lender right away. For federal loans, you may qualify for deferment, which allows you to temporarily pause payments if you meet certain conditions, such as medical issues or economic hardship. With some types of loans, interest doesn’t accrue during the deferment period. Another option is forbearance, which lets you reduce or suspend payments temporarily; however, interest continues to accumulate during this period.
Private lenders may offer similar options, so contact your bank to find out what’s available to you. Remember, simply not paying is a particularly bad idea, as it can damage your credit score — and impact cosigners as well. Additionally, using high-interest credit cards or taking out new loans to cover your student loan payments only puts you deeper in debt, potentially with higher interest payments.
Managing Student Debt Sets the Stage for a Brighter Future
Consider working with a Financial Professional. They can help you evaluate your income-to-debt ratio and determine which type of repayment plan might best suit your situation — or find ways to help you rework you budget to put more money toward paying down student debt. You might even qualify for student loan forgiveness of your federal loans through the Public Service Loan Forgiveness Program or other special programs offered by the U.S. Department of Education.
Your student loan is an investment in your future. Make sure it doesn’t turn into a long-term liability by successfully managing your debt. Taking the time to understand your options and choosing the best repayment strategy can help you stay on top of your loans and maintain better control over your finances as you start this exciting new phase of life after graduation.
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