After you graduate or leave school, it’s time to prepare for loan repayment. This student loan repayment checklist will help you get organized and decide what you need to do to deal with your student loans.
Checklist for the Start of Student Loan Repayment
- Know what you owe and to whom. Make a list of all your student loans and how much you owe on each loan. Note the date your first payment is due. Write down information about your monthly student loan payment and the interest rate. Specify the type of loan (federal or private), the name of the lender, the lender’s web site, contact information and payment address. Your loan servicer can be found at StudentLoans.gov. Federal and private student loans can be found at annualcreditreport.com.
- Take a financial literacy course, if offered by your college. A financial literacy course will teach you how to manage your money and make smarter financial decisions. If a financial literacy course is not available, read Suze Orman’s The Money Book for the Young, Fabulous & Broke or Beth Kobliner’s Get a Financial Life: Personal Finance in Your Twenties and Thirties. Also subscribe to Consumer Reports magazine.
- Set a goal for managing your debt. Do you want to pay off your debt quicker? Or, do you want to pay as little as possible per month? This will help you choose a repayment plan. If your goal is to pay off your student loans faster, you should choose the repayment plan with the highest monthly payment you can afford, such as standard 10-year repayment. This will also save you the most money over the life of the loans. If your goal is to have a smaller monthly loan payment, choose income-driven repayment or extended repayment. But beware, this will mean that you’ll be in debt for decades and will pay more interest. The tradeoff: Higher monthly payments mean a shorter repayment term and a less expensive loan. Lower monthly payments mean a longer repayment term and a more expensive loan.
- Consider student loan forgiveness. Federal student loans may be eligible for various loan forgiveness programs, such as Public Service Loan Forgiveness and Teacher Loan Forgiveness. This may affect your choice of repayment plan.
- Sign up for autopay. Autopay, also known as auto-debit, automatically transfers your monthly student loan payment from your bank account to the lender. You remain in control and can cancel at any time. But, autopay provides two valuable benefits. First, you’ll be less likely to miss a payment. Second, many lenders offer a small discount, such as a 0.25% interest rate reduction, as an incentive.
- Add reminders to your calendar. If you don’t sign up for autopay, add a monthly reminder to your calendar to make your student loan payments two weeks before the payment is due. If you are in an income-driven repayment plan, add an annual reminder to submit the annual income certification and other paperwork.
- Make a contingency plan in case you lose your job. Saving half a year’s salary in an emergency fund is best, but saving even one month’s salary will help.
Annual Student Loan Repayment Checklist
- Claim the student loan interest deduction on your federal income tax return. The student loan interest deduction is an above-the-line exclusion from income for up to $2,500 in interest you paid on your federal and private student loans.
- Accelerate repayment of the loan with the highest interest rate. If you can, make extra payments on the highest-rate loans. This will save you the most money and reduce your average interest rate. Include a note with the payment to specify that it is an extra payment and not an early payment of the next installment. If you have more than one loan with the lender, specify the loan id number of the loan to which the extra payment should be applied.
- Submit income certification paperwork promptly. If your student loans are in an income-driven repayment plan, you must submit an annual re-certification of your income. Do so on time, or your student loans may be placed in a forbearance.
- Create a descriptive budget that tracks your actual spending. Including your student loan payments in this budget. Increasing awareness of your spending is the first step in exercising restraint.
Ongoing Student Loan Repayment Checklist
- Make your student loan payments on time. Actually, you should pay all your bills on time. This will help you build a good credit history. It will also keep you out of student loan hell, where the lender will torture you by garnishing your wages, intercepting your income tax refunds (and gambling winnings, if any) and trashing your credit history.
- If you can’t make a payment, call your loan servicer immediately. Ask about your options, which may include temporary suspending your monthly payments through a deferment or forbearance, making interest-only payments for a period of time or switching to a different repayment plan with a lower monthly payment.
- Verify that the lender and loan servicer have your current address, telephone number and contact information. It is your responsibility to keep them up to date. Otherwise, they may send your bills to the old address, causing you to miss a payment. You are required to make your student loan payments each month even if you don’t have a coupon book or statement. You can update your contact information for federal loans on StudentLoans.gov or nslds.ed.gov. For private student loans, login to the lender’s student loan portal.
- Check your credit history. Some credit card issuers and lenders provide free access to your credit score. Aim to have a credit score of 780 or more. Also, review a free copy of your credit history at annualcreditreport.com and correct any errors.
Checklist for a Few Years into Student Loan Repayment
- Refinance your student loans to get a lower interest rate. If your credit score has improved, you may be able to refinance your private student loans as a lower interest rate. You are more likely to qualify if you pay all your bills on time, have a lower debt-to-income ratio, have a good salary and maintain steady employment. If so, you may qualify 2-3 years after entering repayment. You may even be able to refinance without a cosigner. If you want to refinance your loans, shop around for the private consolidation loan with the lowest interest rate. Compare the interest rate with the weighted average of the current interest rates on all but the highest-rate loan. If the weighted average is lower, you may be better off targeting the highest-rate loan for quicker repayment, which you won’t be able to do if you refinance.
Keep in mind refinancing federal student loans means a loss in many benefits – income-driven repayment plans, any federal forgiveness programs, generous deferment options, and more.
- Don’t refinance your federal student loans. Federal student loans have superior benefits to private student loans, which you’ll lose if you refinance. Parents may wish to consider refinancing the Federal Parent PLUS loan into a private student loan if they have excellent credit and the private loan offers an interest rate that is at least two percentage points lower. If your goal is to streamline repayment by combining multiple loans into one or to switch loan servicers, a Federal Direct Consolidation Loan can do this, but beware, consolidation resets the clock on loan forgiveness.
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