7 steps to start paying back your student loans

  • For federal loans, which make up the bulk of student debt, there is generally a six-month grace period after graduation that gives borrowers time to get on their feet before they have to start repaying their loans.
  • That means grads are just now facing their first bill.
  • If you’re concerned about what happens next, here’s what you need to know.

If you've recently graduated and skated through half a year without too much thought about your student loan debt, it's time to pay the piper.

For federal loans, which make up the bulk of student debt, there is generally a six-month grace period after graduation that gives borrowers time to get on their feet before they have to start repaying their loans.

That means graduates are just now facing their first bill. Seven in 10 seniors leave school with debt, owing over $34,000, on average, according to a report by Experian.

"It's easy for new borrowers to put their head in the sand," said Andrew Josuweit, CEO and president of Student Loan Hero, a student-loan management site. "They've never had $30,000 to $40,000 in loan debt before."

And for 63 percent of families, those grads are solely responsible for paying back their college tab, according to education lender Sallie Mae.

If you're concerned about how to tackle those bills and what happens next, here's what you need to know:

Step 1: Know your loans

Many borrowers have several loans, each potentially with a different interest rate, monthly due date and repayment period. That can be confusing.

To that point, the majority of borrowers, 56 percent, don't know the interest rate on their student loans and 59 percent said they didn't know the repayment term, according to a report by Millennial Personal Finance.

"When it comes to paying back loans, starting out on the right foot is critical," said Antoine Oakley, a spokesman for Sallie Mae.

"When it comes to paying back loans, starting out on the right foot is critical." -Antoine Oakley, spokesman for Sallie Mae

To get there, go to the Department of Education's central database for student aid to get a handle on the terms for your federal student loans. For private loans, call each lender to find out your current balance, monthly payments and when the payment are due. Sites like Student Loan Hero can also provide a dashboard-type overview for borrowers.

By default, you are likely in a 10-year standard repayment plan but there are other options, including pay as you earn or income-based repayment. Ask your lender about what plan best suits you.

"Be aware of what your options are," said Abril Hunt, the outreach manager at Educational Credit Management Corporation, or ECMC, a nonprofit dedicated to helping student borrowers.

Step 2: Update your contact info

Chances are you've moved, taken an extended trip, changed your email address and have a new cellphone. Make sure each lender can reach you.

"It's easy for a loan servicer to lose track of you, and if you're not getting statements you could go into default by accident," said Josuweit of Student Loan Hero.

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Step 3: Monitor your cash flow

Take your income minus expenses, including your rent and monthly loan tab, to determine if you can afford your loan payments.

"That can inform decisions about getting a roommate or whether to buy a car," said Sallie Mae's Oakley.

If your budget feels stretched too thin, look into those income-based repayment programs, which allow you to pay a percentage of your income rather than a flat rate, as long as you are under a certain income threshold. Generally, you'll qualify if your federal student loan debt is higher than your annual discretionary income, according to the Education Department.

If you don't have a job yet and your cash flow is negative, consider a deferment or forbearance. A deferment lets you put your loan on hold for up to three years. If you don't qualify for a deferment, a forbearance lets you temporarily suspend payments for up to one year. However, in this case, interest will still accrue.

In each case, borrowers must apply for permission to postpone payments. "If you run into trouble, reach out and communicate with your servicer," Oakley said.

Step 4: Register for autopay

If you can afford your payments, sign up for autopay. An automatic program will decrease your chances of missing a payment and may come with the added perk of a modest interest-rate deduction on your loan.

That will also put you on the right track to building a favorable credit history, Oakley said.

Step 5: Give your tab a one-time cash boost

If you are feeling flush from monetary gifts at graduation or a starting bonus, consider beefing up your first few payments.

An extra payment is one of the best strategies to pay off student loans faster, said ECMC's Hunt. Just make sure extra payments go toward unsubsidized loans first, then toward loans with the highest interest rate.

You should also specify that those extra funds get applied to the principal of the loan and not to future interest payments.

"Paying off student loans is usually a marathon but if you can find opportunities to make it a sprint, take them," Josuweit added.

However, if you are just getting on your feet, don't forgo the chance to build an emergency fund or max out contributions to a 401(k) plan, he said.

Step 6: See if your employer will chip in

More employers now are offering student-loan repayment benefits to their workers, which can help recent grads pay down their debt.

Only 4 percent of U.S. employers provide student-loan repayment perks, according to the Society for Human Resource Management's 2018 Employee Benefits survey, up from 3 percent last year. However, that number is expected to continue to rise.

If you are job hunting, give extra weight to the employers that do offer a student loan assistance program.

Step 7: Consider consolidating or refinancing

Once you have a steady job, a salary and a credit history, call a few lenders or talk to a financial advisor about your options. If you have several different loans, you might consider consolidating them. Or you may be able to refinance at a lower interest rate. You could also choose to extend the terms beyond the standard 10 years to lower your monthly payments, Josuweit said.

But weigh the options first, he cautioned. Consolidating or refinancing to a private loan will forgo the safety nets that come with a federal loan, including income-based repayment programs and loan forgiveness, for those who would qualify.

Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.

Finally, revisit your loan every six months to a year, Josuweit advised. "Changes to your lifestyle will change your income and expenses and that could impact your repayment plan," he said.

And don't get discouraged by slow progress, he added.

"Your best income generating years are still to come, so there is hope — it just takes time and patience," he said.

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