How To Start Paying Your Student Loans Back

When you graduate college you have to make a lot of major decisions. 

You have to decide what jobs to apply for, where to live, and who to live with. And, on top of that, you have to start managing your finances entirely by yourself — with a flood of bills coming your way.

For many recent grads, that means deciding how to manage your student loans. Federal student loans can be a minefield to navigate and it’s easy to make the wrong decision if you don’t know what you’re doing.

Erika Taught Me

  • Federal student loans come with a variety of repayment options.
  • You can change your payment plan at any point.  
  • Make a deliberate choice when picking a payment plan.

. . .

When Do You Need to Start Paying Your Student Loans?

If you have federal student loans, an automatic six-month grace period will kick in once you finish school. 

But during this time, interest will keep accruing on your student loans — adding more to what you already owe. Because of that, if you can afford to start paying your loans back early, do it. It will save you some money.

Many private student loan companies also provide a six-month grace period (Earnest provides nine months). But interest will almost always accrue during this period as well.

Once the grace period is over, your monthly payment will start coming due. 

In some cases, you can apply for deferment or forbearance after the grace period ends. But beware: interest may still accrue during these times, which could cause your loan balance to balloon if you’re not careful.

Some private lenders also offer forbearance programs if you’re struggling to afford your loans. However, these programs are more limited and the rules depend on the lender and loan. Contact your lender if you are worried about your upcoming payment.

READ MORE: How Does Student Loan Interest Work?

How to Start Repaying Your Student Loans

1. Choose a repayment strategy

Choosing the right repayment plan is crucial. It all depends on what your end goal is. Do you want to save the most in total interest? Do you want the lowest monthly payment possible?

For example, if you’re interested in pursuing Public Service Loan Forgiveness (PSLF), you must be on an income-driven repayment (IDR) plan. If you’re not, then your monthly payments won’t count toward the 120-payment requirement. Extended and graduated payments don’t count. 

If you’re not eligible for PSLF, you can still opt for an IDR plan. You’ll be eligible for forgiveness in 20 or 25 years. Through 2025, the forgiven amount will not be taxed, but it’s still unclear if that will become a permanent feature of all IDR plans.

Federal student loans have several different repayment plans, with a range of monthly payment options. 

To help pick a repayment plan, you can use the government’s federal loan repayment calculator to see what your payments will look like. Make sure to input the correct data, otherwise you might get the wrong results.

Fixed-Payment Repayment Plans

  • Standard: This 10-year repayment plan is the default for federal student loans. It will result in the least amount of interest overall and is usually the best if you want to pay off your loans early. However, it may also result in the largest monthly payments. All types of federal student loans are eligible.
  • Extended: This is a 25-year repayment plan, Your monthly payments remain steady and will not change. Only those with more than $30,000 in federal Direct or FFEL loans can qualify for this plan.
  • Graduated: This is for borrowers whose incomes are low now, but will likely improve in the future. There is a 10-year term for most loans and a 10- to 30-year term for Direct Consolidation Loans. Your monthly payments will gradually increase every two years.

Income-Driven Repayment (IDR) plans

Depending on how much money you’re earning right after graduation, you may want to opt for a repayment plan that’s based on your income.

IDR plans use your discretionary income when calculating your monthly payment. This is calculated as your adjusted gross income (AGI) minus 100% to 225% of the federal poverty guidelines. The exact percentage varies depending on the repayment plan.

Your AGI is your annual income minus retirement plan contributions, student loan interest, certain self-employment deductions, and more.

If you’re unemployed or underemployed, you may even have a $0 monthly payment on an IDR plan. 

If this applies to you, then you can make no monthly payment while remaining in good standing. These months will still count toward Public Service Loan Forgiveness or Income-Based Repayment forgiveness if you’re eligible for those.

  • Saving on a Valuable Education (SAVE) Plan: The new SAVE plan is one of the best options if you have a high loan-to-income ratio (meaning your loan is much higher than what you earn). The repayment term is 20 years for undergraduate loans and 25 years for graduate loans. One of the biggest advantages of this plan is that interest will not be capitalized, which means it won’t be added to your total principal. The SAVE plan has replaced the REPAYE plan, which is no longer available. 
  • Pay As You Earn (PAYE) Repayment Plan: Monthly payments are calculated as 10% of your discretionary income. PAYE has a 20-year repayment term.
  • Income-Based Repayment (IBR) Plan: The IBR plan costs either 10% or 15% of your discretionary income, depending on when your loans were disbursed. Terms are 20 or 25 years, depending on the initial disbursal date. 
  • Income-Contingent Repayment (ICR) Plan: The ICR plan is one of the least popular IDR plans. Payments are set at either 20% of your discretionary income or how much you would pay with a 12-year fixed term. FFEL loans are not eligible, unless you consolidate to a Direct Consolidation Loan.

Note that SAVE and ICR plans don’t have caps on their monthly payments. This means that if your loan balance is much lower than your total income, your payments could wind up being higher than they would be under the 10-year standard repayment plan. 

PAYE and IBR do have caps, so your monthly payment won’t be higher than what you’d have to pay under the 10-year standard repayment plan.

READ MORE: Best Student Loan Repayment Plans

2. Consider Consolidating or Refinancing

Private Loans

If you have private student loans, you probably don’t have a variety of repayment plans to choose from. However, you may be able to refinance or consolidate your loans.

Refinancing private student loans means signing a new lending contract with a different lender, usually to get a lower interest rate, lower monthly payment, or both. 

Consolidation is a specific type of refinancing. Consolidating student loans means taking two or more loans and repacking them into a single loan. This can save you money, but you may also want to consolidate to get a lower monthly payment, even if that means paying more in interest over the long term. 

You can refinance private student loans as often as you want, as long as you qualify. If you have a mix of private and federal loans, you can choose to only refinance your private loans. 

It’s not a good idea to refinance your federal loans because you'll lose all the perks, protections, and benefits that come with federal loans.

Federal student loans

The federal government offers an official consolidation program. 

Consolidating your federal loans will convert them into a Direct Consolidation Loan; these loans are eligible for all kinds of IDR plans, as well as PSLF.  There is no cost to consolidate your student loans. 

However, there is no official way to refinance federal student loans. If you choose to refinance your federal loans, they will become private student loans. This means you won’t be eligible for PSLF, IDR plans, or longer deferment and forbearance programs.

For example, during the COVID-19 pandemic, borrowers with federal loans received more than three years of no payments. But private loan borrowers still had to make payments during that same time. 

If you have a high income, you may choose to refinance your federal loans to save on interest. Only do this if you don’t think you’ll need federal loan perks at any point in the future.  

READ MORE: 

3. Avoid deferment or forbearance

It’s almost always better to opt for an IDR plan instead of deferment or forbearance.

That’s because if you’re truly having financial hardship, your monthly payment will likely be $0 or close to that. Remember, you can check your estimated loan payment with the official loan simulator.

And, even if your payments are $0, they’ll still count toward PSLF or IDR forgiveness. However, months spent under deferment or forbearance usually won’t count.

READ MORE: Student Loan Forgiveness: What It Is and Who Is Eligible

4. Set your payment method

Before you make your first payment, decide on your payment method. 

You can only pay federal student loans directly from your bank account, either via a checking or savings account. You cannot use a credit card.

Some private student loan companies may accept credit cards, but they may charge an extra processing fee. If you’re trying to score rewards points or cashback by using a credit card, that advantage will likely be erased by the extra fee.

Lenders will let you choose between making manual payments or automatic payments. If you opt for automatic payments with a federal student loan servicer, you’ll receive a 0.25% interest rate discount. Many private student loan companies will also slash interest rates if you register for automatic payments.

Plus, having automatic payments means you’ll be able to avoid missing a payment and incurring a late fee. Late fees can cost 6% of your monthly payment for federal loans and around $25 for private loans.

Just make sure that the bank account you choose will always have enough funds to cover your monthly payment. If there isn’t enough money, you could face an overdraft fee and a returned payment fee from the loan servicer.

Even if you set up autopay, you should still log on and check your account every month just to make sure everything is working correctly. Loan servicers are notorious for making mistakes and it’s up to you to double-check payments.

Autopay may not go through on the first payment so you may still have to make a manual payment, even if your autopay is technically set up. Call the loan provider and confirm what to do.

5. Don't be afraid to change strategies

Even if you choose a strategy that seems to fit your life goals, you shouldn't be married to it. Things can change over time, which can mean changing your repayment plan. 

For example, let’s say you’re working for a PSLF-eligible employer, making $100,000 a year, and have $75,000 in federal student loans. 

You see a job opening in the private sector with a $200,000 annual salary and wonder if it’s better to stay the course or take the higher salary. Choosing a job that would double your salary could be better, even if it means foregoing PSLF and having higher student loan payments.

TL;DR

Most student loans have a six-month grace period after graduation — although you'll still be charged interest during this time.

If you have federal student loans, you have a few different repayment options, depending on your income level and the amount you owe. For private loans, you may want to try consolidating or refinancing to get a lower interest rate.

It can feel like a long road to paying off your student loans, but with the right strategy, you can successfully chip away at them.

For more advice on managing debt and preparing for the future, check out these episodes of the Erika Taught Me podcast:

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.