When you graduate college, the real world comes at you fast. Suddenly you have to find a job and a place to live. Maybe you need to move cross country to find better opportunities or maybe you need to move home to plan your next step.
While you’re thinking about what job to apply to or where to get furniture for your new apartment, there might be something you’re forgetting: your student loan payments.
The six-month grace period for student loans ends in the fall for most graduates, which means you may only have a few weeks left before your first student loan is due. Here’s what you need to know to make that first on-time payment.
Find Your Loan Servicers
The first step is to find out where your loans are being serviced. If you have federal student loans, you’ll need to create a Federal Student Aid ID and log into the National Student Loan System. This will list all the federal loans you’ve taken out in your name.
Any loans your parents took out on your behalf won’t show up here. If they borrowed money for your education, they’ll be responsible for finding that information.
Finding private loan servicers can be trickier if the lender doesn’t service their own loans. The best place to look is your credit report, which you can find for free at AnnualCreditReport.com, which shows credit reports from the three credit bureaus, Equifax, Experian, and TransUnion. You can request a free report from each bureau every year.
Create a Profile with your Loan Servicer
Once you’ve learned who your loan servicers are, you should create an online profile with them to start making payments. You may have to call their customer service department to verify and confirm your identity.
Creating an online profile is preferable to using paper statements and bills because recent graduates often move around a lot. Make sure any emails from the loan provider show up in your inbox, not your spam folder.
Ask your servicer when your first payment is due. Most federal loans have a six-month grace period, but some will charge you interest during that time. If you can afford to start making payments before the grace period expires, you should. Some private lenders also offer a grace period, but this varies from lender to lender.
If you can afford your minimum payment, set up automatic payments from your bank account. Automatic payments will ensure you never miss a payment, which will improve your credit score. Plus, it’s one less thing to worry about. Some lenders (like Earnest) even offer a discount on your interest rate if you set up autopay.
You may be able to pay your student loans with a credit card, but the servicer will likely charge an extra fee so it’s best to use a bank account.
Pick a Repayment Plan
Borrowers with federal student loans can choose from up to eight different payment plans, but not every type of loan is eligible for every repayment plan. Once you know what kind of federal loan you have, you can examine which repayment plans you’re eligible for.
The Standard Repayment Plan is a 10-year standard plan with even payments for the whole term. You can also pick an extended or graduated plan which will increase your repayment term but provide lower payments. Income-based repayment plans are an option for borrowers who need the flexibility of lower payments.
Some private loans also offer extended repayment plans, but that depends on your specific lender. Always ask a loan provider what options apply to you.
Learn more: Should I Use a Student Loan Repayment Program?
Options if You Can’t Afford Your Loans
Don’t bury your head in the sand if you’re not sure how you’ll afford your loan payments. Call the loan servicer and explain your situation. It’s best to do this before you’ve missed a payment and might have more options.
Borrowers with federal loans have access to deferment and forbearance, two programs designed to help struggling graduates avoid default. Deferment and forbearance both refer to receiving a temporary reprieve from making student loan payments.
The main difference is that if you’re eligible for deferment, you may be able to avoid accruing extra interest on your student loans. Those who only qualify for forbearance have to pay for any interest that accrues on their loans.
You may have your loans deferred if you enroll in grad school, are unemployed, experience economic hardship or are on active military duty. You have to apply and be approved for deferment and forbearance and some programs require that you reapply to stay eligible.
How to Lower Your Monthly Payments
More than 1 million borrowers default on their student loans every year, and the numbers are expected to rise. Lowering your monthly payments is the best option if you can afford to pay something every month, but you can’t handle your current payments.
Switch to an Income-Based Payment Plan
These plans will increase how much total interest you pay, but they’re better than defaulting on your loans or paying your bills late.
If you switch to an income-based repayment plan, you can always pay extra when you have the money. Federal loans don’t have early prepayment fees so you pay more if you want to.
Refinance Your Loans
Refinancing your loans can lower your monthly payment and decrease your interest rate. If you’re refinancing to make payments more manageable, pick the longest term you can even if it means you’ll pay more interest in the long run.
You can always pay extra when you can afford it, but you’ll have the option to make lower payments.
Refinancing your federal loans will make you ineligible for federal loan forgiveness programs including Public Service Loan Forgiveness. You also will lose the ability to defer your loans or choose an income-based repayment plan. But if you want lower payments with a lower interest rate, this is a good option.