Whoa! You graduated, and now it is time to make a plan to start paying on your student loans.
It is tough to figure out what is the best strategy. There is good news though. Your loans owned by the U.S. Department of Education have been given an extended period of deferment. Payment suspension started March 13, 2020, and on Aug. 8, 2020, it was extended until Dec. 31, 2020. In addition to this, from March 13, 2020, to December 31, 2020, the interest rate on these loans is automatically set as 0 percent. No interest will accrue during this period.
So, what do you need to do now? Make a plan. The first thing to do is figure out what your income and expenses are and what they are going to be for a couple years. Make a budget. Maybe you have not found a job just yet. There are plans that will help you with that. The amount you pay and the length of time you have to repay your loans will vary depending on the repayment option you choose.
There are three traditional repayment plans. The Standard Repayment Plan gives you 10 years to repay with a fixed amount each month of at least $50 per month. The Graduated Repayment Plan gives you 10 years to pay, starts low and increases every two years. Then the Extended Repayment Plan gives you 25 years to repay, and you can choose either fixed or graduated payments. Of course, the less you pay on the front end of the loan and the longer you take to pay it off, the more interest you end up paying. There are other plans based on your income and the type of loan you have. A recommended website is https://studentaid.gov/sites/defaut/files/repaying-your-loans.pdf. Which plan you choose depends on your aforementioned budget. How much can you afford to pay?
Chances are you have several individual loans at several different interest rates. There are provisions to combine those loans. This may not be a great idea if you have some loans at a higher interest rate than others and the rates are high. If you are in a position to pay a big lump, it would be a good idea to make a payment to the highest interest rate loan and knock it out first. If they are combined, you could be stuck with an overall higher rate.
When you log on to your student loan account, don’t be fooled by the fact that all payments are set at 0 percent interest right now. The payments could look much different when the interest rate starts accruing again.
It seems like a mountain — it is really just a mole hill. Remember, you made it through school, and you can make it through this.
Sue Miller understands student loan repayment. She recently celebrated her son's graduation from law school. Pictured here with son, Sam, and husband Steve.