Graduation is an exciting time. All those years of study have culminated into a degree, and the student is ready to enter their chosen field.
For many students, graduation marks a transition into a career with a higher salary, better hours, and less labor-intensive work than what that student would enjoy without their diploma, but it also comes with another very adult issue – student loan repayment.
Understanding Your Student Loan Repayment Options
Once a student graduates college, they will generally be put on a 10-year student loan repayment plan. However, depending on the student loan, they may be able to extend their payments (up to 25 years depending on the loan) or postpone repayment. The amount of those payments is set, but the student could possibly change those terms.
Many student loans, including most federal loans, will allow a student to make payments based on their income. Usually, this adds up to 10-15% of the student's discretionary income.
There are four income-based repayment plans, explains Nerd Wallet. “The one officially known as income-based repayment is best for you if you meet these two criteria: Your current federal loan bill is more than 10% of your income, and you started borrowing money for school after July 1, 2014.”
Other income-based repayment options include the government’s Pay As You Earn, Revised Pay As You Earn and income-based contingent plans. The catch is that the student needs to enroll in a plan that allows income-based repayment.
Most student loans come with a grace period that lasts for six months; these include direct federal loans, Federal Stafford Loans, and certain private loans – but not all.
If a student takes out a PLUS loan, there is no grace period. Repayment starts as soon as the funds are dispersed. Federal Perkins loans also often come with a grace period, but the length of this will vary depending on the school.
Student Loan Consolidation
Many students opt to consolidate their loans into one. This means a single payment each month, and it could make it easier to stay on top of how much the student owes, the terms of the loan, and so on.
“It is quite common for people with student loans to deal with 10-12 lending institutions, which means 10-12 payments and 10-12 due dates each month,” explains Debt.org. “When you consolidate student loans – either federal or private – it’s one payment to one lender, once-a-month. Simple.”
Loan consolidation is an option for both federal and private loans, and the process can be pretty easy if a student's loans are of the same type. Plus, that student could get repayment terms that last up to 30 years.
However, keep in mind that certain student loans have borrower benefits, such as loan cancellation circumstances, that may no longer be available after consolidation.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness (PSLF) program is a federal initiative that can forgive a student loan if the student has been working for a qualified employer for 10 years. This includes any government organizations, tax-exempt nonprofit organizations and other nonprofits that are engaged in public service. AmeriCorps and Peace Corps count too.
The student just needs to be employed for an average of 30 hours per week with the qualifying organization and have received their student loan from a qualifying program.
The student will need to make their regular 10 years’ worth of payments under income-based repayment, but at the end of that period, the remaining balance on their student loans could be forgiven if all the qualifications are met.
When a student understands the loan repayment options they have available to them, they can make more educated decisions about how to manage their finances post-graduation.
A simple conversation with a student aid or student loan officer can make a real difference in understanding the impact of their student loan repayment choices.