The carefree years of college life have come to an end. You’re now free to pursue a career in your chosen field (doesn’t mean it’ll work out—trust us). All your exams have been taken, coursework completed. You’re a graduate. Walk up on stage, get your diploma, and throw your cap in the air to celebrate.
Suddenly, it’s time to pay the bill. You have a six-month grace period to figure out how to do that. What’s your plan? You can start by using a loan payoff calculator to figure out exactly how much you owe. Once you have that number, you’ll need to take the following steps:
Step 1: Identify and contact your lender
The first step should be obvious. Figure out exactly who you owe money to. It won’t be the college or university you attended. They already got paid. Identify the lender—whether you have a federal or private loan (or both)—and get some contact info for them. You’ll want to make a connection as soon as possible.
Step 2: Create a realistic budget
The key word in this step is “realistic.” Everyone wants to pay their debts off as soon as possible. Trying to overpay every month will just land you in hot water financially. Student loan repayment is a marathon, not a sprint. Budget living expenses first, then loan payments.
Step 3: Evaluate your repayment options
Most lenders offer a number of different repayment plans. Look for the one that best fits your budget. That’s what you did all that work for in the last step. You may even be able to refinance the loan to get a better interest rate. Just be aware that if you refinance a federal loan, you may no longer be eligible for federal benefits like forbearance and deferment.
Step 4: Commit to the plan that works for you
Once you’ve identified an affordable repayment plan, commit to it. College was a multi-year journey with a specific goal to earn your degree. Paying off your student loans should be treated the same way. There’s freedom at the end of the road, but it takes commitment.
Step 5: Make your first payment right away
Don’t procrastinate. Interest continues to accumulate throughout the life of the loan, so the sooner you get started, the better. Make your first payment as soon as you choose a repayment plan. Waiting only means more money out of pocket later on.
Step 6: Ask about forbearance options (if necessary)
Federal loans generally have forbearance options. Most private loans do also, especially in difficult economic circumstances. If you’re in a tough spot and can’t start paying right away, ask about these forbearance options and buy yourself a few extra months.
There are a pros and cons to this. Forbearance does not freeze interest, so the balance owed on your loan will continue to go up. On a more positive note, you won’t be charged any late fees and there won’t be a derogatory report to the credit unions for deferring those payments.
The bottom line is to get started as soon as you graduate. The grace period is nice to have, but it goes by quickly. Be prepared and pay as much as you can, without leaving yourself short for living expenses. Commit to a plan, and you’ll be escape from the grasp of student loan debt before you know it.
By Kevin Flynn
Kevin D. Flynn is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their eight wonderful grandchildren and two cats.