College grads, get to work repaying loans

College grad

Congratulations, college grad. Your first challenge is finding a job. The second challenge is just as important: starting to repay your student loans, if you have any.

The time to start thinking about loan repayment is the week after graduation.


Step 1: Find your student loans

You likely have federal loans and private loans, and each may have a different servicing company. You can find a list of all your federal student loans at StudentAid.gov, using your Federal Student Aid log-in credentials. At the bottom of the summary of your loans, you'll see a box: "Servicer/Lender/Guaranty Agency/ED Servicer Information."


There you can find your loan servicing company. Contact each servicer immediately to give your current address and email.

If you have private student loans, the easiest place to check is your own credit report. Access it for free at www.AnnualCreditReport.com. The lenders are listed separately, and you'll see the balance of your loan outstanding. (Your federal student loans will show up there, as well, because by law they must be reported to the three major credit bureaus.)

Federal PLUS loans and private loans do not show up in this database. Your parents will find them listed on their own credit report.

Step 2: Set up a repayment plan

There are two basic repayment plans for federal student loans: the standard 10-year plan and a stretch plan that allows you to stretch out payments for as long as 25 years (if you have at least $30,000 in student loan debt).

The longer-term option carries lower monthly payments, but it will also result in a dramatic increase in the total amount you repay because of the interest charged. The smart move is to choose the repayment plan with the highest monthly payment you can afford. You can calculate those payment alternatives at Finaid.org.

Your best move is to sign up for an automatic monthly deduction transfer for your payments from your checking or money market deposit account. If you sign up for automatic payments, most lenders will give you a 0.25 percentage point reduction in the loan interest rate.

Step 3: What if you can't afford anything?

You have alternatives if you have a low-paying job or no job.

--Income-based repayments. There are several versions of the income-based repayment plan that are available to lower your payments on federal student loans. Most borrowers will have a monthly payment under income-based repayment that is less than 10 percent of gross income. If you have made payments under this plan for 25 years and have not fully repaid your loan, the balance will be canceled. To learn more, go to www.IBRInfo.org.

--Deferral. Federal student loans can be deferred — temporarily postponing payments. During a deferment, interest does not accrue on most subsidized student loans. But, interest will accrue on unsubsidized loans, such as unsubsidized federal Direct and Stafford loans and PLUS loans.

--Forbearance. Forbearance is a sort of last resort if you do not have a job or are on medical or maternity leave. Instead of simply defaulting on your federal student loans (and starting a chain of consequences that destroys your credit), you can ask for forbearance. While in forbearance, your loans continue to accrue interest, which gets added to your loan balance.


Put your education to work, by getting a job and repaying those loans. The sooner, the better. And that's The Savage Truth.

Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." She responds to questions on her blog at TerrySavage.com.

Recommended on Baltimore Sun