Even though presidential candidates have talked endlessly this election cycle about reforming and reducing student debt, many soon-to-be graduates can’t wait that long. They are stuck shouldering loans now. According to the Wall Street Journal, last year’s graduating class had an average of $35,000 in student loan debt, the worst in our country’s history. Collectively, the United States has more than a trillion dollars in student loan debt, and according to Market Watch statistics gathered from the Federal Reserve, that number increase by $2,726 every second.
With so much at stake for students, here are five tips to remember about taking out and repaying your student loans:
1. Find out your loan type
There are many types of loans. You may have a federal loan, private loan, state loan, school loan or some type of combination. Different loan types come with different terms and conditions, so it’s important to keep track of which ones you have.
For federal student loans, you can check www.nslds.ed.gov to view your loan payments and connect with your loan servicer, or the company that handles federal loan billing and payments.
For other loan types, check your records or get in contact with UCF’s financial aid office, which could have files on the type of loans you’ve taken out.
2. Check your loan balance
Once you’ve tracked down all your loans and have identified each one, you need to find out what your total loan balance is in order to work out a repayment method.
Federal student loan balances can be checked on the National Student Loan Data System website, but for private loans, you’ll have to check your billing statements or contact your school or lender.
3. Know your loan interest
All loans come with interest, and student loans are no exception. Check with your loan provider to find out the terms of your loan interest. As your interest accumulates, it may be added to the total value of your loan if left unpaid.
The U.S. Department of Education recommends that recent graduates take advantage of their grace periods to make student loan interest payments. According to The Institute for College Access and Success, a grace period is the time you can wait after you finish school before you have to make your first loan payment.
Different loans have different grace periods. Federal Stafford loans have a period of six months, but federal Perkins loans have a period of nine months. For private loans, it’s best to consult your lender to figure out your grace period; you don’t want to miss your first payment.
4. Arrange your repayment options
For federal student loans, repayment options are automatically based on a standard 10-year repayment plan, according to the TICAS. If that’s too hard for you to cover, federal loans do offer different repayment plans.
You can extend your repayment period, which lowers the monthly payments, but can end up increasing your interest. Income-driven repayment plans such as Income-Based Repayment and Pay as You Earn place caps on your monthly payments based on a reasonable percentage of your reported income, and some offer forgiveness programs for debt left after 25 years of payments made.
Some federal plans will offer forgiveness after just 10 years, depending on whether the borrower works in the public or nonprofit sector.
Private loans don’t qualify for federal forgiveness programs, but many private lenders offer some type of forbearance, although it usually comes with a fee. The best way to find out is to review your original loan paperwork and talk with your lender.
If you’re planning on repaying your loans ahead of schedule, the TICAS recommends repaying those with the highest interest rates first. If you have both federal and private loans, it suggests starting with the private ones, as these typically have higher interest rates and don’t offer forgiveness programs.
5. Don’t ignore your loans
Avoiding your loans can lead to a lot of pitfalls, including loan delinquency or default. Loan delinquency occurs the first day after you miss a payment. If you haven’t made your payments after 90 days, your lender will report your delinquencies to all three major credit bureaus, according to the U.S. Department of Education. A bad credit score can stop you from buying a car, renting an apartment, getting a cellphone plan and signing up for insurance.
When you default on your loans, your total loan balance becomes due, your credit score is destroyed and you total amount you owe increases. If it’s a federal loan, the TICAS reports that the government can garnish your wages or seize your tax refunds until you make your payments. For private loans, if someone co-signed your loan, their finances may also be put at risk.
Deanna Ferrante is a digital producer with the Central Florida Future. Follow her on Twitter at @deannaferrante or email her at DeannaF@centralfloridafuture.com.