When to Start Repaying Your Student Loans
Many students rely on federal and private student loans during college. Here's what you need to know about when you'll start paying back those student loans.
It’s not uncommon for students to need federal student loans (and maybe private student loans) when attending college. While this type of private and federal student aid can help you cover costs, the reality is that, at some point, you have to pay the money back.
Here’s what you need to know about when you’ll make your first payment and what other repayment options you might have with your different student loans.
When Does Student Loan Repayment Start?
Student loan borrowers begin repaying their student loan debt based on the type of loans they have. In general, federal student loans come with a six-month grace period. You don’t make your first student loan payment until six months after you graduate.
This in-school deferment also applies to graduate school. For example, if you have undergraduate loans and then begin graduate school, your federal Direct Loans are deferred until you leave graduate school.
PLUS Loan Repayment
Unlike Direct Loans, federal PLUS Loans do not come with a grace period, meaning they go into repayment when the loan is fully disbursed. However, if you are a graduate or professional student borrower, your PLUS Loans will be placed into deferment while you’re in school and for six months after.
Parent PLUS Loans go into repayment as soon as they’re disbursed, but it’s possible to request a deferment while the student is in school and for six months after.
Private Student Loan Repayment
Private student loans are a little different. Some private loans come with a deferment while you’re in school and a grace period. However, other lenders require you to start repayment immediately after disbursement. That means your first student loan payment takes place while you’re still in college. Before getting a private student loan, find out what the repayment terms are and whether you can expect forbearance or deferment during school — and whether you can request a grace period.
What About the Student Loan Payment Pause?
Due to the coronavirus pandemic, the federal government instituted a student loan payment pause for Direct Loans. This pause has been extended several times, with the latest extension set to end on Dec. 31, 2022, with payments to resume on Jan. 1, 2023. No interest accrues during this special payment pause.
It’s important to note that this payment pause applies only to federal student loan payments on Direct Loans from the U.S. Department of Education, not to those from the old Federal Family Education Loan Program or private loans.
The latest news from the U.S. federal government also includes information about a forgiveness program for those who might qualify to have $10,000 or $20,000 forgiven, based on eligibility requirements. You may need to fill out an application before repayment resumes.
What if You Can’t Make Student Loan Payments?
You might have other options if you’re not ready to make your first student loan payment at the end of a grace period or when the payment pause ends. The Standard Repayment Plan is 10 years, but many people aren’t ready for that. Let’s take a look at what to expect if you need alternatives to standard repayment.
Deferment and Forbearance
These are options that essentially put your payments on pause for a set period of time. With deferment, you can put your monthly payment on pause for six months to three years. However, your interest will still accrue — unless you have subsidized loans. In many cases, deferment applies only to certain federal loans. Make sure you understand the difference between your unsubsidized loans and subsidized loans so you know what to expect.
Forbearance is related to financial hardship. If you’re struggling, you can use forbearance for up to 12 months with federal student loans. Some private lenders offer hardship forbearance programs. Your interest generally accrues during forbearance.
Income-Driven Repayment Plans
Instead of relying on deferment and forbearance, Direct Loan borrowers can turn to income-driven repayment plans. These plans limit your monthly payment to a small percentage of your discretionary income. After a set period of time, you receive forgiveness of your loan balance.
Current plans include a cap of 10% to 20% of discretionary income and a forgiveness time of 20 to 25 years. President Biden recently proposed another income-based repayment plan that would cap your monthly payment at 5% of discretionary income and come with a forgiveness timeline of 10 years before your remaining loan amount is forgiven. More details are likely to be forthcoming, but you can check StudentAid.gov to keep up with the developing details.
Getting a Direct Consolidation Loan can be one way to take advantage of different plans and lengthen your repayment period so that your monthly payments are manageable based on your income.
If you can’t make your payments, income-driven repayment can help you avoid the credit score issues that come with delinquency being reported to the bureaus. If you are struggling, talk to your loan servicer and ask for help getting on an income-driven payment plan.
Student Loan Forgiveness
Another way to reduce what you pay overall is to look into student loan forgiveness. There are several federal loan forgiveness programs to consider:
- Public Service Loan Forgiveness (PSLF): When you work for certain employers, including governments and nonprofits, you can have your remaining loan balance forgiven after you make 120 qualifying payments. A special PSLF waiver is in effect through October 2022 that allows you to “count” certain loan payments.
- Teacher Loan Forgiveness: Federal student loan borrowers willing to teach in underserved areas for five years can get up to $17,500 forgiven.
- Perkins Loan cancellation: Certain professionals can have a percentage of their Perkins Loans canceled for each year they work in eligible areas.
- Health care professionals: There are a number of programs through the National Health Service Corps to get up to $100,000 in student loans forgiven when you work in a high-need area.
- State forgiveness programs: Some states offer their own student loan forgiveness for those who work in certain professions.
Student Loan Refinancing
You likely won’t qualify for forgiveness or income-driven repayment if you have private student loans. Instead, your best bet is to refinance your private loans to a lower interest rate and hope to pay off your debt faster.
You can refinance federal loans, but you will lose access to income-driven repayment plans and forgiveness programs if you do so. Carefully consider your situation and whether you want to lose those federal benefits. One approach is to consolidate federal loans and refinance private loans.
Juno can help you find lower interest rates and other favorable terms if you decide to refinance.
Miranda has 10+ years of experience covering financial markets for various online and offline publications, including contributions to Marketwatch, NPR, Forbes, FOX Business, Yahoo Finance, and The Hill. She is the co-host of the Money Tree Investing podcast and she has a Master of Arts in Journalism from Syracuse University
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