College graduation season is here, with approximately 3.2 million students expected to receive an associate's or bachelor's degree this spring, according to the National Center for Education Statistics. Once the hat tossing and festivities are over, it's time to apply for jobs, lease apartments, and pay off student loans.
Surviving large bills and student loan repayments can be difficult. Things could get even more complicated this year with new payment plans.
Emma Crawford, a certified financial planner and student loan expert at Park Planning, a registered financial advisory firm in Madison, Wisconsin, says it pays to invest time now to research repayment options. talk. They make a lot of money in the long run. ”
For those leaving campus and starting their first full-time job this year, here's how to prepare for your impending student loan bill and new financial reality.
Complete student loan exit counseling
If you have federal loans, you must complete mandatory student loan exit counseling when you leave school. This process takes approximately 30 minutes. You can do so online at StudentAid.gov. During graduation counseling, you will be asked to update your contact information, explain the amount you owe, and explain the basics of student loan repayment.
Crawford said many colleges require students to complete loan exit counseling before submitting their official diploma.
Private student loans are not listed on StudentAid.gov. To verify your loan amount and terms, including any closing counseling requirements, refer to the documents you signed when you took out your loan and contact your lender.
Know your servicer or lender
Federal student loan servicers act as intermediaries between borrowers and the Department of Education. You were assigned a servicer when you first took out your loan. Your servicer's customer service department will help you with specific questions about your loan and repayment options.
Federal student loan servicers are listed on the right side of your StudentAid.gov dashboard. To manage your bill, you will need to set up a separate account on your servicer's website.
“It's very important that you understand who your servicer is because a lot of people don't know that they don't pay for StudentAid.gov. They have to pay their servicer for it,” says Crow. Mr. Ford says.
Please take a few minutes to log into your servicer account and update your contact information. Here, you can also sign up for automatic payments so you don't have to pay your student loan bill manually every month. With Autopay, he also gets an interest deduction of 0.25 percentage points on his invoice.
Choose a repayment plan
If you do not select a specific student loan repayment plan, your servicer will automatically place you into a standard repayment plan. This will divide the total debt into his 10 years of monthly payments plus interest.
The Department of Education's Loan Simulator will give you an estimate of how much you can pay under different repayment plans, how much forgiveness you might qualify for, and more. Take the time to consider the pros and cons of each repayment plan and learn how your monthly payments are calculated, Crawford says.
The new income-driven SAVE repayment plan is suitable for many recent graduates, who tend to earn lower salaries as they start their careers. Starting in July, SAVE will limit undergraduate student loan payments to 5% of discretionary income.
If you're unemployed or have a single-person household income of less than $32,800 (about $15 an hour), you qualify for a $0 monthly payment and SAVE doesn't accrue interest. At the same time, we will move towards loan forgiveness. However, this plan can extend the repayment period from 10 years up to 25 years, depending on the amount borrowed.
Contact your servicer to change your repayment plan. You can also sign up for an income-driven plan like SAVE at StudentAid.gov/IDR.
Private student loan repayment options vary by financial institution.
Prepare your first bill
There is a six-month student loan “grace period” after graduation or after enrollment falls below half-time, during which you do not have to pay any federal student loans. Once the grace period ends, your first bill will be issued.
If you start work before the grace period ends and your federal loan subsidy runs out, consider starting the repayments anyway. Interest will accrue during the grace period, so your total repayments may increase over time. However, if you have a subsidized needs-based loan, there is no downside to taking advantage of the grace period. Interest does not start accruing until he has completed 6 months.
“Use that grace period to jump-start your career,” says Scott Stark, a financial coach and certified financial planner at Financial Finesse, a workplace financial wellness company. “Until you find a job and have some income, you just have to keep your expenses as low as possible and avoid going into debt and digging yourself into a hole.”
Some private student loan lenders offer a grace period after you graduate from school. Check with your lender for details.
plan your financial future
Student loan bills are likely to be a major part of your financial life for the next decade or more. But as a new graduate, you should also check other parts of your financial life to set yourself up for success now and in the future.
During the grace period, try to save at least $1,000 for emergencies. And once he starts his first full-time job, he should aim to put 10% to 15% of his income into a workplace retirement account like a 401(k). Say.
“Your future self will be very grateful, because it will give you the benefit of more time to grow,” Stark says. “This is a great opportunity to start things off on the right foot.”
If your workplace offers a financial wellness counseling benefit, take advantage of it, says Stark. Some jobs may even offer student loan repayment benefits, which can help you pay off your debt faster.
Details about NerdWallet
Eliza Haverstock writes for NerdWallet. Email: ehaverstock@nerdwallet.com. Twitter:@elizahaverstock.
The article “Graduating with student loans?” Prepare for Your Financial Future originally appeared on NerdWallet.
