How Financially Smart College Graduates Repay Their Loans

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By Tracy Scott

 

Completing your college degree is one of the best things you can do to increase your lifetime earnings. Regardless of which credential you recently received, you’ll want to be smart about how you spend those earnings, and that includes how you repay your student loans. If you received Federal Student Loans, you should have completed an Exit Interview that summarized your repayment responsibilities. It should have included information about your specific repayment options.

Like many graduates, you may have been so excited about your accomplishment that you’ve yet to review those materials from your loan servicer in detail. But, as you prepare to enter the repayment period, take the time to read that information and consider your options. Making a smart decision about a repayment plan now can save you money, even if it needs to be changed later.

Here’s how financially smart college graduates repay their loans.

Financially smart college graduates have their student loan servicer on speed dial.

Contact your college or university’s financial aid office or visit MyFederalStudentAid.com if you don’t have the contact details for your student loan servicer readily available. The servicer is the company you will communicate with regarding payments and other questions about your loans. Repayment options can vary by servicer, which it’s why you should review all documentation they mail to you. Also, visit their website for additional information.

Your loan servicer will be your first stop if you have a sudden dip in income or if you lose your job. Contact them if you ever have problems making payments. You might be able to defer, or temporarily cease payments, without damaging your credit. Remember that for most student loans, interest continues to accrue during deferment periods.

Financially smart college graduates select budget-friendly repayment plans.

Most loans have a standard repayment period of 10 years, but specific repayment plans and consolidation loan programs can extend your repayment term up to 30 years. Here are the most common Federal Student Loan repayment plans:

A Standard Repayment Plan sets fixed payments in an amount that would pay off the loan in 10 years.

The Graduated Repayment Plan might be ideal for borrowers who enter into fields with low starting salaries. Minimum monthly payment amounts start low but increase every two years. The monthly payment amount continues to rise to ensure the loan is repaid in full within 10 years.

The standard timeframe for student loan repayment is 10 years. An Extended Repayment Plan allows borrowers up to 25 years to repay the loan. Payments may start even lower under other plans but will increase to ensure the loan is paid in full by the end of the loan term.

Income-Driven Repayment plans consider changes in your household income and family size. Income-Contingent Repayment Plan (ICR), Pay As You Earn Repayment Plan (PAYE), Revised Pay As You Earn Repayment Plan (REPAYE), Income-Sensitive Repayment Plan, and the Income-Based Repayment Plan (IBR), are types of income-driven repayment plans. Each plan varies in the time given to repay the loan.  Graduates must initially meet borrower and loan eligibility requirements in addition to submitting annual documentation to maintain program eligibility. The monthly repayment amount can range between 10 to 20 percent of your discretionary income.

Visit StudentAid.ed.gov for additional eligibility requirements and limitations for each repayment type. While the Standard Repayment Plan may be the default choice for many college graduates, take the time to review your budget and make your selection based on your current financial situation. Keep in mind that the longer it takes to repay your loans, the more you’ll pay in interest charges.

Financially smart college graduates take advantage of automatic payment options.

Some loan servicers offer borrower repayment incentives. These might include interest rate reductions for signing up for automatic payments or for making consecutive on-time payments. This ensures payments are made on time and saves you money over the life of the loan. Missing a payment can mean trouble for your credit which can affect your ability to qualify for a car loan and make it difficult to rent your ideal apartment or home. On-time bill payment affects your credit more than the other known credit scoring factors.

Generation FCU members who would like to set up automatic payments toward their student loans may do so through their Online Banking account. Not a member? Open a MyAdvantage checking account with us to ensure your student loan payments are made on time.