Tackling a hefty new monthly expense can be daunting, particularly for recent grads who haven’t found steady work.
But grads have many options for making student loan payments more manageable, even putting them off, if they qualify.
The key is to avoid missing payments, which can scorch your credit score and even lead to having your wages garnished.
“The majority of students who miss payments on loans miss the very first payment,” said Mark Kantrowitz, publisher of Edvisors.com, a college planning and financing website that is owned by student loan servicer College Loan Corp.
Here are five ways recent grads can manage their student loan debt:
1. Know your loan terms
Both federal and private student loans give borrowers a grace period of at least six months before they’re required to begin making payments. You’ll need to know the terms of your loan to evaluate options for repayment, or to ask for a deferment when your grace period expires.
For example, Stafford loans have a six-month grace period, while Perkins loans give borrowers nine months before their first payment is due. Grace periods for other types of federal loans and private student loans can vary.
Ask your lender or check out this U.S. Department of Education website, which shows how to find the lenders that manage federal loans: https://studentaid.ed.gov/repay-loans/understand/servicers .
If you have private student loans, you’ll have to contact the lender directly.
2. Consider deferments and forbearance
Can’t find a job? Can’t afford any student loan payments? Borrowers with federal student loans can temporarily postpone payments by asking for a deferment or forbearance.
Deferments allow you to temporarily put off making payments. During this period, the government will pay interest on three types of federal loans: direct subsidized loans, subsidized federal Stafford loans and Federal Perkins loans. Several factors may enable you to qualify for a deferment, including economic hardship, unemployment or serving in the military on active duty during a war.
If you don’t qualify, you may request a forbearance, which can generally buy you up to 12 months without making payments. However, you’ll continue to pile up interest on your balance, even with subsidized loans.
Estimate how much interest you’ll accrue on a deferment with this online calculator: https://studentloanhero.com/calculators/student-loan-deferment-calculator/ .
3. Review payment options
If you qualify, there are repayment plans on federal loans that will set your monthly payment to a level based on how much you earn or a percentage of your discretionary income.
Another option is a graduated repayment plan, which offers lower upfront payments that increase every couple of years.
You can enroll in income-based repayment plans as soon as you begin paying back your loan, but notify your lender early on, as it can take 30-to-60 days for the paperwork to be processed. Expect to provide a tax return or other income verification, said Andrew Josuweit, CEO of StudentLoanHero.com, an online student loan management site.
Federal loans are scheduled to be paid back over a 10-year period. But if you can’t afford your monthly payments under that standard plan, you may be able to extend the length of time to pay back the loan up to 25 years. That will lower the monthly payment, but you will pay more over the life of the loan.
“It’s not just reducing your monthly payment, it’s increasing the total cost of the loan,” Kantrowitz said.
Here’s a breakdown of repayment options on federal loans: https://studentaid.ed.gov/repay-loans/understand/plans .
On private student loans, repayment options will vary from one lender to the next.
4. Look out for savings
Your student loan balance may seem like a fixed financial obligation, but there are often ways to carve out some savings.
For example, if you set up your monthly loan payments to be directly deducted from your checking account, many lenders will give you a slight interest rate reduction. On federal loans, it’s generally a 0.25 percentage point reduction, notes Kantrowitz.
At tax time, be aware that you can deduct up to $2,500 of interest paid on federal and private student loans on your federal income tax return.
5. Weigh a loan consolidation
If you have several loans to repay, consolidating your payments may be a good option.
Consolidating your loans can help you manage your debt because you only need to keep track of a single, lower monthly payment for all your loans. But your loan term will also increase, which means you’ll be paying more in the long-run.
“If you’re actually trying to save money, it’s not always in your best interest to consolidate,” Josuweit said.
In addition, you will no longer be able to take advantage of some of the perks built into federal loans, such as deferment options and the variety of income-based payment plans.
For more tips on how to consolidate your student loan, check out: https://studentaid.ed.gov/repay-loans/consolidation .
Edvisors has a list of lenders offering private consolidation loans at http://PrivateStudentLoans.com .