Belated congratulations to the Class of 2016! Hopefully you’ve spent the last six months enjoying the summer since your graduation. For thousands of graduates with Federal Student Loans, we’ve got some bad news: your loan’s grace period is about to end.
What’s a grace period? There’s a six-month window between when you leave school (or drop below full-time enrollment) and when you are required to start repaying your student loans. This six-month stretch is called your grace period. This time is intended to help recent graduates transition into the next stage of life—secure a job, figure out your finances, and get settled—before they enter the “repayment” phase of their loans. This time is also helpful for reviewing your repayment options and making sure you’re on a repayment a plan that fits your budget.
Even though you may have a little time left in your grace period, it’s important to make sure you’re taking the appropriate steps now before your monthly due date kicks in. Here are some tips to help you transition into the repayment phase of your loan.
Imagine you’re already paying your loans, and start an emergency fund.
While it may seem like a long time ago, you completed an Exit Counseling session about your student loans just before you graduated, and you chose a repayment plan. Log in to your loan accounts now, and figure out what your payment will be on the plan you selected. Every month until your repayment begins, set your payment amount aside in an “emergency” account. This helps in two ways. First, when your real payments come due, you’ll already be adjusted to making these payments. Secondly, if you ever find yourself unable to make your payments due to an unforeseen circumstance, you won’t get behind on your payments or have to ask for any deferments on your loan payments. Making an emergency fund is essential to good financial health and security, so starting with this small action can snowball into a better savings habit.
Choose a repayment plan wisely.
There are many options to choose from when considering your repayment plan. From Standard to Graduated Repayment, IBR versus ICR, Pay as You Earn plans, and more. You may need to revise the repayment plan you selected in your Exit Counseling. Before you opt for the lowest payment, make sure you pay attention to the amount of interest you’ll pay over the life of the loan. The standard repayment plan of ten years may be the highest amount per month for you, but it’s also the lowest amount of interest for the life of the loan. This means less money comes out of your pocket overall. Ideally, you want to try to select the Standard Repayment Plan if you can. If you simply can’t afford that monthly payment, it’s perfectly normal to end up choosing an income-based or graduated repayment plan. Remember if you find yourself with extra money at the end of the month, you can always add that amount to your monthly payment and pay down the principal.
Try not to stress about your loans!
If you had little assistance paying for college, you may find yourself feeling overwhelmed by the initial monthly payment due on your loans or your overall balance. While it’s normal to wonder what else you could be spending that money on, remember what you paid for: your education, and the ability to earn a higher income for the rest of your life! While student loan debt can be incredibly stressful in the short-term, consider it an investment in yourself. Early in your career, you may feel like your student loan debt limits your financial goals. If you shift your perspective to view it more as a mortgage on your-income earning ability, though, you’ll feel much more accomplished and far less stressed. Think about what you’ll be able to do in the future because of your education! You may feel daunted now, but keep in mind that your student loan debt will pay off for the rest of your life.
There are tons of great resources through feedthepig.org and studentaid.ed.gov to help you with repaying your student loans. Keep in mind that there are tax implications and benefits also associated with student loans and their repayment. We here at Crippen Certified Public Accountants want to help you navigate your life after school efficiently and effectively. Feel free to reach out to one of our trusted accountants today for more information about what we can do to help.