Graduation is an incredibly exciting time. The thought of walking across that stage and finally being finished with school is enough to push you through that final stretch of presentations, papers and extreme consumption of coffee. With your thoughts on the future and what your post-graduation plans are there is one thing to keep in mind- loan repayment (sorry buzzkill) For the purposes of financial aid we will focus on repayment options for the most common student loan debt- Stafford loans. However it is important to keep in mind that if you have borrowed Perkin’s, Mass No Interest Loans, or any private loans that those all have various repayment options as well.
Once you graduate your grace period will begin. For students who have not taken any time off between school years this will be 6 months. In these six months you will be contacted by your assigned loan servicer. The Department of Education uses several different servicers for billing and repayment for student loans and it is your responsivity to stay in touch with your servicer. Your servicer will be your main point of contact from here on out. You can look at your repayment options and even begin the consolidation process with them.
Now two questions may come to mind at the moment- what are the repayment options and what is consolidation? Great questions! I wanted you to ask those so that worked out well- didn’t it? There are various repayment options that you can look into with your loan servicer. There is the Standard Plan, Extended Plan, Graduated Plan, and Income- Based Plan.
The Standard repayment plan is the plan that your loan servicer will place you on automatically if you do not chose another plan. This plan will save you money over time because the payments are usually larger but you also pay the loan off in a shorter time, thus saving you money on interest. These loan payments are minimum $50 a month and are made for up to 10 years (for non-consolidated loans only).
The Extended repayment plan lowers your monthly payments but increases the amount of time you are paying off for your loans. Instead of payments over 10 years the payments are made for up to 25 years. In order to qualify for this plan you must have over $30,000 in outstanding Direct Loans.
The Graduated repayment plan begins your payments lower and gradually increases every two years. Payments are made for up to 10 years (for non-consolidated loans) and payments will never be less than the amount of interest accrued between payments. This plan is a good option if your income starts low but you expect to increase over time.
Income- based repayment are plans that are designed to make your debt manageable by decreasing your monthly payment amount to a certain percentage of your discretionary income annually. There are three different income based repayment plans and each have their own timeline and payment percentage differences.
Since we have reviewed the different repayment options for your loans it’s time to talk consolidation. Loan consolidation allows you to combine federal loans into one loan which results in one single monthly payment instead of multiple payments for each loan. There is no fee for applying to consolidate your loans but you should carefully consider whether or not it is the right option for you. You will be able to simplify your loan repayment process but centralizing your bill into one and give yourself up to 30 years to repay all the loans. Loan consolidation will also take your variable interest rates for each loan give you a fixed interest rate for all the consolidated loans. This is usually an average between all of your interest rates so for example let’s say you have three loans at 3.5%, 4.6% and 6.2% the average interest rate between the three is 4.7% so you lose that lower interest rate but also decrease the overall interest for some loans. For information about the pros and cons about consolidation check out this great article from SALT.
Hopefully this doesn’t dampen your spirits too much- remember that graduating college is a great accomplishment and an investment in your future. As always we are here to answer any questions you may have!
Until next time!!