Most student loans come with a six-month grace period to allow borrowers some breathing room between finishing school and making payments on their loans. Earnest private student loans offer nine-months, but either way, you’ll have to start making monthly loan payments at the end of your grace period.
The grace period isn’t a time to live in blissful ignorance but rather an opportunity to get your financial house in order before those monthly payments start carving out a chunk of your monthly budget.
It might be too late to learn about what you’re getting into with a student loan, but you still have time to fully get your head around your repayment options.
Make a List of All Your Private and Federal Student Loans
Start with the basics. List all of your loans—you could have more than a dozen federal loans or private loans—in one place, including total balance, interest rate, loan term, first payment deadline, servicer and payment details, and respective customer service contact information.
David Levy, an editor at Edvisors, a company that helps students and their families plan and pay for college, urges graduates to use the National Student Loan Data System to track down all of their federal student loans and corresponding student loan servicers. If you have private student loans as well, those will be listed on your credit report, which you can retrieve for free once per year from AnnualCreditReport.com. Edvisors also has a useful student loan checklist that can help you capture the relevant details.
Make a Loan Repayment Plan
Next, figure out what your monthly minimum(s) are—if you don’t already know, use a loan calculator to find out.
During your grace period, you’ll also be able to choose a repayment plan for your federal loans—those who do not make a selection will default into the standard 10-year plan with a fixed payment amount. If monthly payments on the standard plan are too high for what your budget can handle at the time, you may be able to select graduated repayment, for which payments start low and gradually increase. In addition, extended repayment may be an option, which can extend up to 25 years and payment amounts can be fixed or graduated.
Levy recommends choosing the plan with the highest monthly payment your budget allows for in order to minimize the total interest you’ll pay.
If your budget has any wiggle room once you’ve selected a plan, you should also see how payments above the monthly minimum affect the total interest paid and how long repayment will stretch.
Use this calculator to figure out the total amount of interest you’ll pay over the life of the loan, assuming you make the minimum payments. Then, go back and increase the monthly payment input, and take note of how both interest paid and loan term decrease. In the future, use these calculations as a reminder that putting your spare dollars towards loan payments can really make a difference.
Lastly, consider signing up for auto-debit for your loans. Mark Kantrowitz of Cappex, a college admissions and financial aid website, suggests this tactic not only to avoid missing a bill but also because some lenders will offer an interest rate reduction of 0.25%-0.50% as an incentive.
Read more: Paying Off Student Loans? Try the 20% Rule
Start Paying Down Your Student Loan Debt As Soon As You Can
If you have only subsidized students loans (which you’ll know from your above homework), then you can skip this one. But if your loans are unsubsidized—which some federal undergraduate, all federal graduate, and all private student loans are—it’s well worth considering if you can start paying before the grace period ends.
Kantrowitz recommends starting payments early if possible, as interest on unsubsidized loans accrues even when you aren’t making payments, and is capitalized at the end of your grace period. If you need further convincing, calculate how much this extra interest will cost you by using a calculator like this one from Student Loan Hero.
If you have both types of loans, you can even start paying back only your unsubsidized loans now, and wait until your grace period is over to make payments on subsidized loans.
Consider Consolidating or Refinancing
Your grace period is also a good time to start thinking about whether you’d like to consolidate or refinance your loans. Loan consolidation puts all your loans in one place and with one servicer, but does not change the total amount of interest you’ll pay on the loan(s), while refinancing can do this plus lower your interest rate to actually reduce what you’ll pay in total interest.
Consolidation can be a good option for graduates who have a few different types of loans and for whom making multiple payments is stressful. In addition, consolidating your loans allows you to retain the benefits of federal student loans, such as income-based-repayment.
Refinancing, on the other hand, is worth looking into if you have good credit, a steady job (or job offer letter), and can show that you have the means to meet monthly payments. If you plan to take advantage of government programs such as income-based repayment, however, refinancing may not be a good fit, as it’ll cause you to lose these benefits.
Even if refinancing isn’t a good option right now (as is often the case for recent grads who are still building their credit and don’t have a steady income), now is the time to think about whether it might be a money-saver in the future. Perhaps set a calendar reminder for one year from now, or for when you expect you might get a raise, to re-evaluate your financial profile and consider whether it’s a good time to refinance.
Use This Time to Save
Even if you don’t want to start paying off your loans early, it’s a good idea to start saving for those payments as soon as possible so that you start off on the right track.
If you know you will not be able to make your payments once your grace period ends, your options are few: The requirements for deferment (interest typically does not accrue) are quite strict, and forbearance (interest will accrue) requires an application. Simply not paying them is a bad idea as it will put you into student loan default, which will hurt your credit for years to come, and you may also incur additional fees along with accrued interest. (Of course, you can recover from student loan default, but it could take years.)
Leverage Job Benefits
Lastly, Kantrowitz also recommends asking if your current or future employer offers a student loan repayment assistance program, an employee benefit that has been gaining popularity in recent years. If finding the right role takes a while, a side gig can be a good way to stay in the black while you’re job hunting, and potentially a good source of side income once you start working full-time.