If you’re about to graduate from college or graduate school, you probably have a million different things on your mind. You’re likely focused on wrapping up final exams or writing your thesis, looking for jobs or fellowships, and figuring out where to live. Not to mention bonding with friends during pre-graduation activities or that congratulatory summer trip.
Add getting ready for your first student loan payment to your to-do list. The financial terms can get confusing, and you don’t want to risk being blindsided and missing payments once you’re thrust into the post-college “real world.”
Plus arming yourself with information will help ensure you choose the right repayment option for your situation and have a plan for managing your debt in the long-term. One thing is clear: ignoring your student loans can lead to massive consequences for your financial life.
Learning to make student loan payments doesn’t have to be complicated, once you have the fundamentals down. Since you most likely didn’t cover these things in your classes, here are some tips for everyone preparing to make their first student loan payment.
Learning Key Terms
Let’s start with the basics of student loans. Loan agreements are full of jargon, but there are a few terms you need to understand. One is principal, which is the amount you originally borrowed (and what’s left once you start repaying it). Then there’s interest rate, which is a percentage of the principal the lender is charging you for borrowing the money.
The next term to know is the balance, which is the amount of money you currently owe on your loan. This will start out as being equivalent to the principal, but will grow as interest gets added on.
Another important term is capitalization. This is when unpaid interest gets added to the principal of the loan. With federal student loans, you might rack up unpaid interest during periods of deferment, forbearance, or if you have an income-driven repayment plan in which your payment doesn’t cover interest in full each month.
If you don’t pay that interest, it can be capitalized—including when the deferment or forbearance period ends or when you leave an income-driven plan (voluntarily or not). Capitalized interest can then be added to the principal balance of your loan.
Creating a Budget
The key to paying off student loans, like any debt, is budgeting. Budgeting can sound like a buzzkill, but it’s really a way to take control of your money and make sure you avoid disaster and keep moving toward your goals. To make a budget, you can start by making a list of all the expenses you foresee after graduation.
Include both necessities (rent, utilities, transportation, groceries), and discretionary spending (gym memberships, eating out, clothing, Netflix). Make sure that you include your student loan payment here!
Next, you could make a list of the income you expect—after taxes. This may include your salary or wages, any gifts from your family, and any income from side hustles. If your expenses exceed what you make, you may want to find ways to either cut your spending or grow your income. Don’t be afraid to get creative.
Ideally, you’d even have a bit of room left over to start saving every month for retirement and other goals. Luckily, most federal student loans come with a grace period of six months, which might give you enough time after you graduate to figure things out and make adjustments. The bottom line is: Don’t just hope you’ll have money left for student loans every month—plan for it.
Choosing a Repayment Plan
With federal student loans, you can select from about eight different student loan repayment plans (what you qualify for depends on the loans you have and when you borrowed). With the default Standard Repayment Plan , you pay the same amount every month and pay your loan off within 10 years.
This plan allows you to get rid of your loans relatively quickly and pay less over the life of the loan (since interest has less time to accrue), but the payments can be too high for some borrowers with heftier debt balances.
The Graduated Repayment Plan also has you pay off your loan in up to 10 years but starts out with lower payments, then gradually increases them every two years or so (presumably alongside your salary).
The Extended Repayment Plan has a repayment term of up to 25 years through either fixed or graduated payments. This can help you get lower payments, but it will take longer to pay your loans off and, thus, you’ll likely pay more in interest.
Finally, there are four different income-driven repayment plans that tie your monthly payment to a percentage of your discretionary income. The plan that’s right for you depends on what loans you have, what you can currently afford, and your career prospects. If you’re confused, you can always talk to your loan servicer about which plan is right for you.
Paying On Time
Making your student loan payments on time is, obviously, super important. With federal student loans, if you miss a payment, your loan will become delinquent . After 90 days, your loan servicer will typically report this to the three major credit bureaus, which could impact your credit score and/or affect your ability to take out other loans, rent an apartment, and open credit cards.
After 270 days, your loan will go into default. This is a potentially dire scenario: Your loans could become due in full and immediately, and you won’t be able to choose your own repayment plan or qualify for deferment or forbearance. Eventually, the government can sue you or garnish your wages.
Oneway to make sure you don’t miss payments is to sign up for automatic payments with your lender or loan servicer. And if you do miss a payment, make it as soon as possible.
Knowing What to Do If You Have Trouble Keeping Up
If you do run into issues making payments on your current plan, don’t ignore them—and don’t just stop paying. You might have options for making the loans manageable again. With federal loans, if you’re experiencing a temporary hardship, you can apply for deferment or forbearance.
Both of these options might let you pause or reduce your payments for a period of time. You may qualify if you’re still in school, unemployed, not working full-time, facing high medical bills, if your payment is more than 20% of your gross monthly income, or because of other financial challenges.
For a longer-term solution, if you’re not already signed up for an income-driven repayment plan, you can look into whether this can make monthly payments affordable for you. Private lenders aren’t required to help, but many might accommodate you in the case of a short-term issue.
Asking for Help if You Need It
You don’t have to go it alone. If you’re confused about any aspect of your student loans or not sure about the right way to proceed, you can ask for help. If you haven’t found what you need on the Department of
Education website, a good place to start is with your loan servicer. Most are available by phone, and you can usually reach them by email or online chat too.
Looking Into Refinancing
Refinancing your student loans can be a good way to make your debt manageable over the long term. When you refinance, you get a new loan from a private lender and use it to pay off your existing federal and private loans.
This can be a great deal if you’re able to qualify for a lower interest rate, which may reduce the amount you pay over the life of your loan. Alternately, you might qualify to extend your loan term, securing you a lower monthly payment. That can give your budget more wiggle room, though you’ll end up paying more interest on your loan overall.
You usually have to wait until you graduate to refinance, and it often helps to wait until you’re making a stable and decent income and have a good credit score. Otherwise, you could apply with a student loan cosigner to potentially qualify for better terms.
When you refinance with SoFi, you won’t be subject to origination fees or prepayment penalties, and you’ll have access to complimentary advice from career coaches and financial advisors.
But be aware that by refinancing, you will no longer be able to take advantage of federal benefits like deferment, forbearance, income-driven repayment plans, or the Public Service Loan Forgiveness program. It takes just two minutes online to see if you qualify and your potential rates.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the
FTC’s website on credit.