Know exactly what you owe
Log in to studentaid.gov to see every federal loan you hold, its type, its interest rate and the servicer assigned to collect it. The servicer is the company you pay, and servicers change, so keep your contact details current. Private loans do not appear there. Find them on your credit report, which lists every lender. On a subsidized federal loan, the government pays the interest while you are enrolled at least half-time, and on an unsubsidized loan, interest accrues from the day the money is disbursed. Federal rates are fixed for the life of each loan. Private loans are priced on credit and usually involve a cosigner who is fully liable.
Repayment plans
Repayment generally begins six months after you graduate, leave school or drop below half-time. Unless you choose otherwise, you are placed on a standard plan with fixed payments, which traditionally runs ten years, though newer loans run up to twenty-five for larger balances, and a shorter term costs less in total interest. Income-driven plans set the payment as a share of your income instead, can bring it very low when income is low, and forgive any remaining balance after twenty years or more. Congress and the courts have rewritten the menu of plans repeatedly in recent years, and the plans open to you depend on when you borrowed, so rely on the loan simulator at studentaid.gov, not on advice that may be out of date.
Forgiveness and trouble
Public Service Loan Forgiveness cancels the remaining federal balance after 120 qualifying monthly payments made while working full-time for a government agency or a qualifying nonprofit. Confirm your employer and plan early, and keep records. If you cannot pay, deferment and forbearance pause payments, but interest usually keeps accruing. A federal loan goes into default after about nine months of missed payments, and the government can then garnish wages and seize tax refunds without going to court. Call the servicer before you miss a payment, not after.
Paying them down
- Enroll in automatic payments, which earns a quarter-point rate reduction on federal loans and from many private lenders.
- Direct any extra payment to the loan with the highest rate, and tell the servicer to apply it to principal on that loan.
- Think hard before refinancing federal loans with a private lender, because the move is permanent and gives up income-driven plans, forgiveness and federal hardship options.
Note Nobody needs to pay a company for help with federal student loans. Consolidation, plan changes and forgiveness applications are free through studentaid.gov and your servicer.
