Getting Ready for Repayment

Now that you are getting closer to graduation it's time to start thinking about repayment on your loans. Below is some helpful information to get you started.

Repayment Plans 

After you graduate, leave school, or drop below half-time enrollment, there is a six-month grace period before you are required to begin repayment. You should choose a payment plan option that works for you at least one month before your grace period is over. Work with your lender to review your options.

As a rule of thumb, your payments should not exceed 8 percent of your total income. To find more detailed information on each repayment plan option, visit Federal Student Aid.

Use the Loan Simulator to calculate what your payments would look like for each repayment plan type.

Debt Payoff 

Now that you know about the different repayment options, you will want to create a debt payoff plan, whether you want to follow your lender’s payment plan or if you want to pay off the loans as fast as possible. 

Here are two common strategies used to help pay off loans:

• The Debt Snowball Method
  • This method aims at paying off your smallest loan balance first to help you build momentum over time. The idea is for you to make the minimum payments on all other loans, while making larger payments on your smallest loan. Once you pay the first one off, you move on to the next one. 
    • Pros
      • Provides quicker gratification and a sense of accomplishment
      • Can free up extra funds to help pay off other balances
      • Pays off loans faster than making minimum payments on all loans
    • Cons 
      • It may take longer to pay off loans because you are focusing on the smallest balance rather than the highest interest rate loan
      • You could pay more in interest over the life of the loans

• The Debt Avalanche Method
  • This method focuses on paying off the loans that have the highest interest rate first, and then moving on to the next highest rate. 
    • Pros
      • May save more in interest 
      • May pay off loans faster than paying the minimum payments or the snowball method
    • Cons
      • May not see immediate results and will take longer to achieve gratification 

 

Use this Debt Payoff calculator to help determine which method may be best for you!

Tips to Help Pay Off Loans Faster

• Pay Right Away
  • While some Federal loans have a grace period of up to six months,make payments during your grace period to get a head start if you are able.
• Automatic Debit
  • Set up auto debit for your loans. Some lenders offer an interest rate deduction to those who enroll in auto debit. Check with your lender to see if this is an option.
• Debt Payoff Plan
  • Have a plan in place to tackle your debt. Know your options in case you ever need to adapt your plan.

Loan Consolidation

Carefully consider whether loan consolidation is the best option for you. Loan consolidation can greatly simplify loan repayment by centralizing your loans to one bill and can lower monthly payments by giving you up to 30 years to repay your loans. However, if you increase the length of your repayment period, you'll also make more payments and pay more in interest.

Once your loans are combined into a direct consolidation loan, they cannot be removed. The loans that were consolidated are paid off and no longer exist. It is important to understand that consolidating your loans may make you ineligible for some borrower benefits such as loan forgiveness or cancellation of the consolidated loans.

If you decide to consolidate during your grace period, you will lose any remaining grace period and repayment will begin once your application is processed. If you simply need to reduce your monthly payment, you may want to consider an income-driven repayment plan instead.

In the case of Parent PLUS Loans, Parents can consider the Income Contingent Repayment plan, but will need to use the Direct Loan consolidation to be eligible (students can’t consolidate their parent’s PLUS into their loans. Additionally, parents may not consolidate the Parent PLUS loan into a student loan. If you’re referring this info to parents this statement needs clarity).

For more detailed information on loan consolidation, you can also visit Federal Student Aid. To apply, visit studentaid.gov and complete the Direct Consolidation Loan Application and Promissory Note.

Forbearance 

In some cases, you may not qualify for a deferment, but you can qualify for forbearance. With forbearance, you may be able to stop your monthly payments or reduce them for up to 12 months. Interest will accrue on all of your loans during this time.

For a list of reasons you may qualify, visit Federal Student Aid or contact your servicer. To apply, contact your servicer.

Grace Period

Your Grace Period is the six-month period that starts the day after you graduate or are enrolled less than half time and when you have to start paying back on your Federal Loans. This is an important time for preparing to pay back your loans! 

Here are some things to consider during your grace period:

• Create an account with your lender, if you have not already done so.
• Consider your repayment options and which one you will select.
• Be on the lookout for emails from your lender.
• Set up Auto Debit.
• Watch for your first statement.
• Consider making early payments.

Avoiding Scams

When you are getting ready to enter repayment, you may see an increase in Loan Forgiveness scams. Please visit studentaid.gov for helpful information on how to identify scams and best avoid them. Never give out your personal information on an incoming call from someone claiming they can help you set up repayment.

 

If you have questions or would like help with getting ready for repayment, please schedule an appointment here: gfufa.as.me/financial-wellness