10 Tips to Prepare for Making Student Loan Payments

After all of your hard work, you’ve finally done it: you’ve earned your college degree. That’s a tremendous achievement, and you should be proud of yourself. 

However, there is a downside to graduating — you have to start repaying your student loans. Thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you won’t have to make any payments on your federal student loans until the end of January, but payments may be required if you have private student loans. 

It’s important to take the time now to get your finances in order before your first student loan payment is due. 

10 Ways to Prepare for Your First Student Loan Payment

If the idea of repaying thousands in student loans is overwhelming, don’t worry; if you take the time now to develop a strategy for managing your loans, you can better handle your student loans once repayment begins. Here are 10 things you can do now before your first student loan payment is due. 

1. Identify Your Loan Servicers

You may have been in college for four years or more, and you may have taken out multiple student loans to cover the cost. Over time, you may have lost track of your loan accounts, or you may not know who you have to make payments to now. 

The first step in managing your debt is finding out what loans you have and who is handling your loans. 

For federal student loans, you can find out what outstanding loans you have by logging into the Federal Student Aid account dashboard or by calling the Federal Student Aid Information Center at 800-433-3243. 

If you have private loans, you can find out who is servicing your loans by reviewing your credit report at AnnualCreditReport.com. 

2. Figure Out When Your Payments Will Start

While federal undergraduate loans have grace periods that last for six months after you graduate, other student loans may not have that benefit. Depending on your loan’s terms, payments may begin much sooner. 

To find out when your payments are due and how much you owe, review your loan agreement. If you don’t have access to it, you can also contact your loan servicer and request those details. 

3. Review Your Interest Rates

If you have multiple student loans, they likely all have different interest rates. Your rates can vary based on the loan type, the year you took them out, and your credit at the time of your application. 

If you want to pay off your debt as quickly as possible, it makes sense to use the debt avalanche method and make extra payments toward the debt with the highest interest rate. With this approach, you’ll also save more money than if you targeted the debt with the lowest balance like you would with the debt snowball method. 

4. Create a Budget

To make sure you can afford your payments, spend some time creating a budget. List all of your fixed and variable expenses. Account for expenses like rent, groceries, utilities, insurance, transportation, and entertainment. 

If your budget is tight — or if you are spending more than you earn — you can look for areas to cut back. For example, you can save money by getting a roommate, canceling subscriptions, or downsizing to a smaller apartment. Or, you can improve your cash flow by getting a part-time job for launching a side gig. 

Not sure where to start? Mint is a great resource for creating a budget from scratch, and it’s free. 

5. Sign Up for Automatic Payments

With most student loans, you can sign up for automatic payments and the loan servicer will deduct the required payments from your bank account on your due date. Autopay will prevent missed payments, and some lenders offer interest rate discounts if you sign up for automatic payments. 

6. Explore Alternative Payment Plans

If you find that your minimum required payment is too high based on your current expenses and income, find out if you are eligible for an alternative payment plan. 

With federal loans, you could qualify for an income-driven repayment (IDR) plan. With IDR plans, your payment is based on a longer repayment term and a percentage of your discretionary income. 

If you have private loans, you aren’t eligible for IDR plans. However, some lenders offer reduced payments or other alternative repayment plans for borrowers that can’t afford their payments. 

7. Start Making Payments Now

Even if payments aren’t due right now, it’s a good idea to start paying what you can before your payments are due. Making payments during the grace period will reduce the amount of interest that accrues, helping you save money. 

If you have federal loans, your payments are especially effective if you make them now. Until January 31, 2021, interest rates are set at 0%, so your entire payment will go toward the loan principal rather than interest, allowing you to pay off your loan faster. 

8. Talk to Your Employer About Repayment Assistance

If you’re employed, check with your human resources department about your employer’s benefits. To recruit and keep talented employees on staff, some employers offer student loan repayment assistance programs. They’ll contribute a certain amount toward your student loans, up to a percentage of your salary. Taking advantage of this perk can reduce how much you have to pay out of your own pocket toward your loans. 

9. Calculate How Much You Can Save With Extra Payments

Your minimum required payment is designed to pay off your student loans by the end of your loan term, and no sooner. If you want to pay off your loans more quickly and save money, you have to pay more than the minimum amount. Even an extra payment of $10 or $20 per month can make a big difference. Extra payments will reduce the amount of interest that accrues and shorten how long you’re in repayment.

10. Consider Refinancing Your Student Loans

If you have high-interest debt, one of the most effective ways to prepare for your first student loan payment is to refinance your loans. With student loan refinancing, you work with a private lender to borrow money to pay off your existing education debt. Going forward, you’ll only have to manage the new loan. 

If you have good credit and are employed, you could get approved for a loan with a lower interest rate than you have now or a lower monthly payment. 

Before refinancing your loans, make sure you compare rates from multiple student loan refinancing lenders. Juno is a great place to start; Juno negotiates with lenders to get the best possible rates.