Congratulations! You’ve graduated from college and now you’re ready to head out into the workforce. Earning a degree gives you an edge in the competitive job market but for many students it often comes with a heavy price tag. If you borrowed to cover the cost of your education, the good news is you have some time – your grace period – before you have to start paying it back.
Most federal loans allow you a six-month grace period to get your finances in order prior to repayment. Private lenders may also offer an interim period. What you do or don’t during this time can have a significant impact on how quickly you dump your student debt. Here’s what you can do now to make sure you’re ready for the end of the grace period.
1. Add It Up
One of the biggest mistakes students tend to make is not keeping track of how much they’ve borrowed while they’re in school. When that first loan statement rolls in, it can be a real shock to see how much debt you’ve actually racked up.
Attacking your student loans begins with knowing exactly what you owe. Once you graduate, your lender should start sending out a monthly statement for your account. If you’ve borrowed from multiple sources, you’ll want to get all of your statements together and add up the total.
2. Get Organized
Keeping track of your student loan paperwork should also be a priority. Setting up a file for your monthly statements can help you stay on top of what you owe, what your interest rates are and when your payments are due. If you took out both federal and private loans, you’ll want to keep the information separate so you don’t get them mixed up.
3. Consider Consolidation
Consolidating multiple federal loans may allow you to reduce your interest rate and lower your monthly payment. Consolidation is also a smart move if you want to extend your repayment term but there are a few drawbacks to consider.
If you opt for a longer loan term, you might pay less on a monthly basis but you’ll pay more over the life of the loan. You also run the risk of losing out on certain benefits associated with the original loan, such as a discount on your interest rate or a principal rebate.
If you took out private loans, you may also be able to consolidate through a private lender to get a better deal on your interest rate. You can also consolidate a federal loan into a private loan but you would lose out on certain protections that are only available for federal student borrowers.
4. Go Over Your Budget
A budget is one of the most important financial tools young grads need, especially if you’ll soon be tackling a mountain of student debt. If you’ve never made a budget before, you’ll want to have one in place before the grace period is over.
Add up all of your monthly expenses, including what you anticipate your student loan payments to be, and compare them to what you’re making. If your income isn’t enough to carry all of your basic expenses and your student debt repayment, you need to know so you can plan ahead (find a second job, move to a cheaper living space, etc.).
5. Weigh Your Options
If you do find yourself in the position of being unable to pay your student loans, there are ways to put off making payments once the grace period expires. Taking a deferment, for example, means your payments and the interest on your loans are temporarily suspended. Generally, you can get a deferment if you’re enrolled in school at least half-time or you experience an undue financial hardship.
For students who don’t qualify for a deferment, requesting forbearance is the next best option. During a forbearance period, you don’t have to make payments on your loans but they’ll continue to accrue interest. If you are able to pay something to your loans but it’s not the amount your lender’s asking for, you may want to look into the different repayment plans that are available. There are several income-based and income-contingent options for borrowers who need a little extra wiggle room.
The sooner you start getting a grip on your student loan situation, the better off you’ll be. Using the grace period as a time to prepare yourself financially can work to your advantage when it’s time to start tackling the debt.
Photo Credit: Lee Summers