How to Pay Off Your Student Loans

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If you've taken out student loans over the course of your higher education studies you'll eventually have to start making payments towards your outstanding loan balance. In this article we will cover the easiest way how to go about making those payments and best way to begin paying down your debt.

Although the process of paying off your student loans will be similar whether you've taken out a federal or private loan, we'll first look at how to pay off your federal student loans as these are the lion's share of student loan debt in the US.

Typically, most former students won't start paying off their accrued student debt until after they've graduated from college. That's not to say we don't advocate towards making payments while you're in school though. If you're able to earn some money between attending class and studying, you may find that putting some of your income towards your loans relieves the stress of having to pay everything after you've graduated.

But using the most common example, once you've left school and are making your first foray into the real world, lenders will expect you to start giving them their money back. The good news though is that there's a likely chance you'll have 6 months (or more) to find that dream job, get settled in, and make your first payment.

The period of time between when you leave school and have to begin making payments towards your loans is called the "grace period". The table below shows you how long the grace period is on federal student loans based on which type of loan you've taken out:

Loan TypeLength of Grace Period
Direct Unsubsidized Loan6 months
Direct Subsidized Loan6 months
Perkins Loan9 months
PLUS LoanUpon disbursement
*Disbursement is the time at which you receive your student loan funds

Determining Your Student Loan Servicer

So, before your loan enters repayment you'll want to determine who your loan servicer is. And while this can get confusing, it doesn't have to be.

What you're going to notice is that who you're paying for your student loans isn't always who loaned you the money. This is because lenders often hire a middleman (loan servicing company) to handle and manage the student loan repayment process. You don't get to decide which company you work with, this is assigned to you automatically, but there is an easy way to determine which entity you'll be working with.

Determining Who's Servicing Your Loan

Follow these steps to figure out which loan service provider you'll be working with:

  • Go to the NSLDS website
  • Click the "Financial Aid Review" button
  • Accept the Terms and Conditions
  • Login with your FSA ID Info

From here you'll see a Loan Summary. You'll want to click on each individual loan listed to reveal which loan servicer is in charge of your account.

Here's a list of some of the most popular loan servicers currently on the market:

Now that you've identified you loan servicer, you'll want to head over to their website, create your account, and start thinking about how you want to repay your student loans.

Choosing the Best Student Loan Repayment Plan

You've identified your loan servicer, created an account, and are ready to start paying down your debt. Congratulations! At this stage, you'll get to decide which repayment plan fits best with your personal financial situation.

Repayment OptionRepayment TimelineFor People Who
Standard Repayment PlanUp to 10 yearsWant consistency in their payments. These payments are fixed amounts.
Graduated Repayment PlanUp to 10 yearsWould smaller montly payments now, but are willing to pay more down the road
Extended Repayment PlanUp to 25 yearsHave larger ($30k +) student loan balances and prefer to pay less each month, but pay for a longer period of time
Income Based Repayment PlanDepends, but loan balance not paid after 20-25 years will be forgivenAre in a tight spot financially. Debt must be high relative to income. Monthly payments limited to 10-15% of discretionary income.

It's important to note that if you discover your payment plan isn't working for you, you can always contact your loan servicer and discuss switching to a new repayment plan. This option may be attractive in a variety of scenarios. As an example, if you started out on the fixed monthly payment plan but happened to lose your job at some future date. It may make the most sense to switch to an income based repayment plan which will lower your monthly payments and help ensure that you don't default on your loan.

Estimating your Loan Payments

In advance of having to begin payment on your student loans, you may be curious to know what they are going to cost you on a monthly basis. The US Department of Education has built a great loan repayment estimator tool that's free to use and let's you accurately determine what your payments are going to be.

So that you can see what the output of the tool looks like, we've entered data into the tool with some basic assumptions. Our hypothetical student went to a 4 year private school, and graduated with an average loan balance ($29.214) at 3.9% interest. They filed as single on their tax return with an income of $50,000 per year living in New York state.

Here's what the repayment estimator tool showed us:

Repayment Options

You'll notice that the standard repayment plan spit out the highest monthly payments ($294 per month). This number will stay consistent throughout the 10 year repayment timeline.

Further, if you're looking for the most affordable repayment schedule in this example you'd opt for the graduated repayment plan which only requires monthly payments of $165 per month at the outset. That being said, it's critical to note that this repayment plan will result in increased payments every 2 years, and go as high as $494 / month during the final 2 year period.

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