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Collins Community Credit Union

Tips for New College Graduates Paying Back Student Loans

For many college students graduating with student loans, the end of their college years may bring the stress of figuring out how to address the repayment of their debt. Fortunately, the process is relatively straightforward to understand, with certain protections available from the federal government, and many loan servicers are willing to work with borrowers even when it is not legally mandated.

Published on May 14, 2018

Understanding deferment and forbearance

First, it is important to understand two ways interest accumulation on student loans is treated, both during your years in college and after graduation. Both deferment and forbearance allow you to delay paying back the principal of the loan; however, with deferment, additional interest will not accrue during the deferment period, while with a forbearance period in place, interest will accrue. You are not required to pay the interest accrued during the forbearance period, it can instead be capitalized, meaning it will be added to your loan balance and will become part of the principal to be paid off when the forbearance period ends. 

Paying back federal loans

If you hold federal loans, your post-college plans impact your eligibility for deferment and forbearance. Generally, if you are attending graduate school, joining the Peace Corps, becoming active duty military, or one of several other circumstances, federal guidelines will automatically qualify you for loan deferment or forbearance, depending on your exact situation. Also, if you do not find a full-time job right away, you may also qualify for deferment for up to three years.

These guidelines apply to most federal loans, but it is important to check on the specifics for your exact type of loan. If you do not qualify for any legal protections, your loan servicer may also consider non-mandatory requests for deferment or forbearance at their own discretion, so contact them to learn your options if you are concerned about your ability to make your monthly payments in full. After all, your lender would prefer you were eventually able to pay your loan back in full rather than defaulting on your loan.

Paying back private loans

If you had to borrow more money for college than your federal loans covered, you will be bound by the specific terms that your private lender set, which are not subject to federal legislation. Most private lenders allow a six-month grace period in which repayment does not need to begin unless the borrower chooses. However, if you are able, you should begin repaying these loans as soon as possible to reduce your interest charges and the ultimate amount you will have to repay.

Since private loans almost always have higher interest rates than federal loans, prioritize paying down private loans first. Further, private student loans almost always require a cosigner unless the student had a stable employment history prior to applying for the loan, meaning that it is your responsibility to ensure that you properly manage your debt and ensure that it does not fall onto your cosigner to pay.

Private lenders have their own process for handling requests for deferment or forbearance, but many will consider reasonable requests. If you are concerned about not being able to start repaying your loans within six months of graduating, it may be worth inquiring about special accommodations.

Managing lifestyle inflation

It can be easy for new graduates earning a salary for the first time to adjust their living expenses upward and spend most of their new income but graduates with student loans must set aside cash flow not only for long-term savings and retirement, but also for student loan repayments. Even if your loan interest charges are currently deferred, begin making payments as soon as possible to avoid having to adjust your living expenses downward when the deferment or forbearance period ends.

Conclusion

Your decision to acquire student loans will be more than worth their cost if you are able to secure a steady, well-paying job after graduation. As soon as you are settled into your new lifestyle, career, and home after graduating, begin incorporating loan payments into your budget. if you are ever confused about the terms of your loan, ask your lender for assistance. Their priority is to maximize the chance that you will fully pay back your loan without problems, so they have an incentive to help you understand the process. Keep careful track of all your loans and their unique terms, prioritize your payback schedule on the loans with the highest interest rates, and pay off your loans as early as possible, regardless of whether you are legally required to yet, to minimize the amount that will be lost to interest charges rather than paying down principal.

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