Get Ready for the Start of Student Loan Repayment

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Mark Kantrowitz

By Mark Kantrowitz

December 18, 2018

Student loan repayment begins six months after the student graduates or drops below half-time enrollment. There are several steps that student loan borrowers should take during the grace period, before the start of repayment, to ensure that the repayment begins smoothly.

Parent loans enter repayment at the same time. The Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) allowed parents to defer repayment Federal Parent PLUS loans while the student was enrolled on at least a half-time basis and for six months afterward. Prior to ECASLA, Federal Parent PLUS loans entered repayment within 60 days after full disbursement each year.

Don’t Be Late with the First Payment

Student loan borrowers are more likely to miss the first payment than any other payment.

This is partly because no payments are due during the six-month grace period, so it is easy for borrowers to forget about their student loans. You can choose to enter repayment sooner, if you’re able to start making payments on your student loans. This will save you money, since interest continues to accrue during the grace period.

You can’t count on receiving a reminder or statement from each of your lenders, especially if you’ve moved since leaving college. After all, did you remember to notify the lender about your new address? If you didn’t, it may take months before skip tracing locates your current address.

Make a list of all your loans, including the first due date, the amount of the first payment and the payment address. You can compile a list of your loans using and, if you haven’t been keeping track of your loans as you borrowed them. Your college’s financial aid office might also be able to help you.

Tip: Add a reminder to your calendar a few weeks before the due date for each loan’s first payment, so you don’t forget to send in a payment on-time.

Choose a Repayment Plan

If you don’t choose a repayment plan, your federal student loans will be placed in the Standard 10-Year Repayment Plan, which is not a bad choice.

Compare repayment plans based on the monthly payments and the total payments over the life of the loan. A longer repayment plan will have a smaller monthly payment, but higher total payments. So, even though it may seem like you are “saving” money in your monthly budget, you will be paying a lot more over the repayment term. A shorter repayment term will save you more money overall because every extra dollar you pay each month will pay down the principal balance of the debt.

Extended repayment and income-driven repayment plans reduce the monthly payment by stretching out the term of the loan. These repayment plans are more expensive, since you will pay more interest in total.

The only exception is if you are pursuing Public Service Loan Forgiveness (PSLF), since the forgiveness cancels the remaining debt after 120 payments (10 years of payments). With PSLF, the goal is to reduce the monthly payments as much as possible by using an income-driven repayment plan.

Tip: Choose the repayment plan with the highest monthly payment you can afford.

Don’t Consolidate or Refinance Your Student Loans

Consolidating or refinancing student loans prevents the borrower from targeting the highest-rate loan for quicker repayment. If the interest rate on the consolidation loan is greater than the weighted average of the interest rates on all but the highest-rate loans, you will be better off financially if you keep the highest-rate loans separate and make extra payments on them.

Consolidation and refinancing does simplify repayment by replacing multiple loans with a single loan. But, most lenders offer unified invoicing, where all of your loans with the lender are included on a single statement.

The interest rate will not necessarily be better.

  • The interest rate on a Federal Direct Consolidation loan will be more or less the same, if not higher, since it is based on the weighted average of the interest rates on the loans included in the consolidation loan, rounded up to the nearest 1/8th of a point.
  • The interest rate on a private refinance may be higher because your credit score will be lower immediately after graduation. Wait a few years to build a good credit history and a stable employment history before trying to refinance without a cosigner and at a better interest rate.
  • Even if you qualify for a lower interest rate, the interest rate might be variable. While a variable rate may initially be lower than the equivalent fixed rate, ultimately the variable rate will cost more than the fixed rate on federal student loans, given the current rising-rate environment.

Don’t refinance federal student loans into a private student loan because you will lose the better benefits provided by federal student loans, such as lower fixed interest rates, income-driven repayment plans, longer deferments and forbearances, death and disability discharges, and loan forgiveness options.

Tip: Save money by accelerating repayment of the highest-rate loan instead of consolidating or refinancing your student loans.

Sign Up for Auto-Debit

With auto-debit, the borrower authorizes his or her bank to automatically transfer the monthly payment from the borrower’s bank account to the lender’s bank account.

Many lenders provide borrowers with a slight interest rate reduction in exchange for signing up for auto-debit with electronic billing.

Borrowers who sign up for auto-debit are less likely to be late with a payment. The monthly bills are still paid on time, even if the borrower moves, so long as the borrower’s account has sufficient funds.

Tip: Auto-debit may save money with a lower interest rate. It also reduces the likelihood of missing or being late with a loan payment.

Don’t Count on Cosigner Release

Many lenders offer cosigner release after the borrower makes 12-48 consecutive on-time monthly payments. But, less than 1% of borrowers qualify for cosigner release.

Lenders have strict criteria for who qualifies for cosigner release. The payments have to have been made by the borrower, not the cosigner, and the borrower must satisfy the lender’s credit criteria to qualify for the loan entirely on their own. Not only must they have an excellent credit score, but they must have had stable employment for at least a year or two and sufficient income to be able to repay the debt.

Tip: Refinancing private student loans without a cosigner may be easier than qualifying for cosigner release.

Claim the Student Loan Interest Deduction

The student loan interest deduction lets taxpayers deduct up to $2,500 in interest paid on federal and private student loans. The student loan interest deduction is an above-the-line exclusion from income, so taxpayers can claim it even if they don’t itemize.

Parents and grandparents can also claim the student loan interest deduction, if they are obligated to repay the debt. For example, the parent borrower of a Federal Parent PLUS loan and the cosigner of a private student loan can deduct the interest portion of payments they made.

Tip: Save several hundred dollars on your federal income tax return by claiming the student loan interest deduction.

Don’t Default on Your Student Loans

If you don’t have a job, there are several options for dealing with your student loan debt. These options include deferments, forbearances, and income-driven repayment plans.

Be aware that interest continues to accrue during periods of non-payment, so you may be digging yourself into a deeper hole. But, these options are better than defaulting on the loans, which can lead to collection charges, wage garnishment, offset of income tax refunds and Social Security benefits, among other penalties.

Private student loans may offer a partial forbearance, in which the borrower makes interest-only payments for a period of time. This prevents the loan from growing larger.

Tip: Deferments and forbearances may cause the loan balance to increase due to interest capitalization, but they are better than defaulting on your student loans.

A good place to start:

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