6 Things to Consider When You Start Paying Your Student Loans

If you’re like many recent college graduates, you live in fear for that day when your first student loan payment is due. Given that the average graduate has more than $30,000 in student loan debt, it’s understandable that you might worry about how you’ll pay it all back.

But paying back your student loans doesn’t have to be scary and you don’t have to lose sleep over it. To prove that, I asked Nate Matherson how he’s planning to tackle it. At just 21, Nate is the co-founder of LendEDU, an online marketplace of student loans and student loan refinancing providers. He says he started the business because both he and his co-founder had private and federal student loans and wanted to help other students by creating more transparency around student loans.

He shares with me six student loan repayment tips that recent grads should consider.

1. Get to Know Your Loans

The first tip that Nate has for recent graduates is that they get to know their loans. “Consider building a simple spreadsheet with each of your student loans catalogued,” he says. “You should figure out what type of loans you have, the interest rates, the term lengths, and the amount owed on each loan.” Knowing as much as possible about your loans is key because if you have federal and private loans at various different interest rates it will help you figure out which loans to allocate more money to so you can pay those down faster. Nate suggests that, “If you are able to make additional principal payments, start by paying off the high-interest loans first. And, make sure that your servicer is actually applying your additional principal payments correctly.”

2. Consider Auto-Pay

Auto-pay can be an easy way to save money. All you have to do is set up your student loans so that they’re automatically paid every month from your bank account. The key here, of course, is to make sure you have the money in your bank account to cover the auto-payments each month — otherwise you risk overdraft fees. Enrolling will save you up to 0.25% in interest. Over the life of your loan, that adds up. An added bonus, according to Nate, is that auto-pay, “will ensure that you won’t forget to make any payments.” Paying your loan late is the last thing you want to do since it will cost you in late charges and will negatively impact your credit score. (If you want to see how your loans and payment history affect your credit, you can get your credit score for free from many sources, including Credit.com.)

3. Understand Deferment & Forbearance

If you’re approaching your repayment period and you aren’t currently employed or if you are experiencing financial difficulties, you might be considering deferring or forbearing your student loans. Both deferment and forbearance are ways to pause payments on your student loans if you meet the criteria in order to qualify. “I can’t recommend that anyone choose to put their loans into deferral or forbearance unless they absolutely need to,” Nate says. “Depending on the type of the loan, interest will accumulate during periods of deferment and forbearance. In turn, the cost of your loan will rise.” If you’re considering one of these options, you can contact your loan servicer to see if there are other repayment options that can accommodate your current financial situation.

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4. Look for Chances to Increase Your Payments

The longer it takes for you to pay your students loans, the more you’ll be paying in interest. That means that when you start making enough money that you can comfortably make your student loan payments, consider whether you can increase how much you pay every month. According to Nate, “If you have the ability to make additional principal payments each month, you should. If you find yourself paying 6%-9% in interest you can save yourself a lot of money by paying your principal off on an accelerated schedule.” If you want to pay off your student loans faster to escape the bondage of student loan debt more quickly, there are ways you can cut back on your expenses or start a side hustle to help.

5. Consider Refinancing

Refinancing your loans early in your repayment period can have the greatest impact in terms of reducing what you pay in interest over the life of the loan. It also can give you greater flexibility in terms of repayment terms and interest rates if you have a good credit score and can qualify for a better rate. Says Nate, “Most student loan refinance lenders offer five-, 10-, 15-, and 20-year term lengths in both variable and fixed rates.” It’s important to take time to figure out what terms or types of interest rates are right for you depending on how quickly you want to pay back your loans. It’s important to remember that extending the repayment period on your loan may raise your total cost in the long run too, even if it lowers your monthly payment right now.

If you’re considering refinancing federal student loans, make sure you know how that could affect your eligibility for government relief programs, and whether the refinancing lender offers any similar assistance if you encounter financial difficulties down the road. You might think that all student loan refinance lenders are the same, but that couldn’t be further from the truth. Be sure to read the fine print of any loans you’re considering.

6. Choose the Right Federal Repayment Plan

When it comes time to choose the right federal repayment plan, there are several different options. From Income Based Repayment to the Standard Plan, you might wonder which is right for you and will save you the most money. According to Nate, “at the end of the day, choosing a repayment plan is different for every borrower. Whether you are looking to pay back your loan quickly, or over a longer period of time, there is definitely a package that fits your financial objectives.” As a rule, payment plans that extend the length of your loan or reduce your monthly payments will end up costing more money over the course of the loan since you’ll be paying more interest. But having a lower monthly payment now might be worthwhile for you if you can’t afford a larger payment. Nate advises that you, “ask yourself what is important to you and your goals. Then, choose the repayment plan that aligns with those goals.”

Knowledge Is Power

Paying back your student loans doesn’t have to be a frightening process. While it can seem overwhelming, the more you know about the process the more confident you’ll feel about it. Before your repayment period begins, be sure to get all the facts and consider the tips above to ensure that you’ll be ready to pay off your loans as quickly and painlessly as possible.