Student Loan Repayment 101

With college graduation comes celebration and relief. But after the parties end, reality sets in. For 40 million Americans, student loans are a necessary evil in order to pursue higher education. Facing a large loan balance can be overwhelming and confusing, so it’s important to understand your loans and your repayment options.

When do I start paying the loans back?

For most federal loans, you have a grace period of about six months from the time you graduate until you need to start making payments. During that grace period, if you have an unsubsidized loan your account will still rack up interest charges; you just won’t be responsible for the principle (the amount you borrowed before interest). If you get a job after graduation and can afford to start making payments before the grace period is up, absolutely do so. It will help bring down how much interest you pay over the term of your loan.

Some loans do not have a grace period, so be sure to double check your lender agreement for your payment start date.

What do I actually owe?

It’s not uncommon for loans to change lenders over time. If you can’t find your lender or loan details, this site can be a huge help. This will help you locate your lender, figure out how much you owe and what your monthly payment will be.

I’m supposed to pay that?!

Your student loan payments may be hefty, and your starting salary may be too low for you to handle basic necessities and your full payment. Understand all of your options regarding repayment. Common options include:

• Standard: You pay a set amount every month for up to 10 years. Under this plan, the payment amount never changes and you pay it off faster and with less interest than other plans.
• Graduated Repayment: You’ll pay less on your loan every month at first, then it will gradually increase. This can give you some more wiggle room when you’re first starting out but you will pay more on your loan than if you did the standard repayment plan.
• Extended Repayment: Rather than a 10 year term, your loan can be extended in certain circumstances to as long as 25 years. This can greatly reduce your monthly payment, which can be a huge help if your salary isn’t cutting it, but you will end up paying much more than on a standard or graduated repayment plan in the long run.

What if I can’t afford it?

If even on an alternate repayment schedule you can’t afford payments, it’s imperative to work with your lender. Student loans are one of the few kinds of debt that can’t go away with bankruptcy. If you don’t pay, your credit score can get wrecked and the lender can even garnish your wages. No matter how long it takes you, you have to pay back your loans.

But there are options to help you through a tough time, such as unemployment or a medical issue.  Carefully consider these options and work with your lender to find what works best for you. Call the number listed on your lender account website and explain to the representative that you cannot afford your payments. Make sure to say why that is—temporary job loss, disability, etc—since that will determine what your options are:

• Deferment: During a deferment, your loan payments are delayed for a set period of time up to 3 years. You can be eligible for deferment if you are unemployed, are deployed in the military or are experiencing significant financial hardship. Deferments are not automatic and you are not guaranteed to be granted one. You’ll need to contact your lender to talk through the application process to have a deferment enacted.
• Forbearance: If you don’t qualify for a deferment, you may qualify for a forbearance. Your payments can be stopped or reduced for up to 12 months. A temporary financial hardship or illness may get you qualified, but again, the process is not automatic and you have to work directly with your lender.

Completely overwhelmed? Lifehacker has a quick guide to help walk you through the process of talking options over with your lender.

I have a good job and can actually make my payments! Should I pay extra?

Congratulations! Paying even a little more each month can make a huge difference; Extra payments lessen the amount of interest you’ll pay off over the long-term and you’ll have your loans paid off early. The Student Loan Repayment Calculator is a great tool; enter your loan balance, how much longer you have to pay, and your interest rate, and it will show you how making extra payments will impact your loan. Even paying as little as $5 more a month can cut months off your loan terms and can save you hundreds of dollars in interest.

This article is meant as a general overview of the most common student loans, but as always, your situation and your loans may differ. Be sure to check your loan terms with your lender.

Heart of Florida United Way is focused on addressing the five major building blocks of financial stability in order to provide low-income working families the services and support necessary to succeed. For more information, visit www.hfuw.org or if you are in need of assistance, call 2-1-1, our 24-hour information and referral helpline.

13 Ways to Prepare for an Income Reduction

This article originally appeared on “Surviving and Thriving” and has been reposted with permission by Donna Freedman.

A reader suggested an article on preparing for income reduction. Not layoff or job loss, but rather a partial loss of expected funds – salary reduction, an end to child support and the like.

“Where you still have a job, but really need to evaluate the ‘new budget’,” she says.

I’ve written on this subject before, calling it the “financial fire drill.” You figure out how little you can get away with spending – and you do it with an attitude of calm preparation, not fear of deprivation.

This baker’s dozen of tips will get you started.

1. Figure a baseline budget. This is the absolute minimum needed for basic shelter, food, utilities, and mandated payments like child support or student loans. Best-case scenario: Trimming some budgetary fat partly or mostly offsets the income reduction.
2. Track current spending. If you haven’t got a budget, build one – with pen and paper or with a free online tool like Mint.com. Again: Knowing where it’s going can show you places to cut.
3. Pay down any consumer debt. Trimming some budgetary fat, as noted above, can give you extra bucks to throw at debt. Two other potential tactics: Try to negotiate a lower interest rate or see if you can get a balance transfer.
4. Ease off on prepayments. Have you been paying extra on your mortgage or your student loans? Redirect that money into savings; as my MSN Money colleague Liz Weston points out, even a $500 emergency fund can make a huge difference.

Cut some costs

5. Re-think your auto. Can yours be a single-car or even a car-free household? If so, sell or garage one vehicle. Don’t cancel your car insurance outright, since it can be hard and/or expensive to get back in. If you truly need wheels, then talk to your agent about raising your deductible. While you’re at it, look for a better insurance rate.
6. Inventory your stuff. Is any of it saleable? Somebody paid $1,200 for my little plastic statue of Bob Feller.
7. Cruise frugality sites. May I suggest the following: my site (of course!), The Dollar Stretcher, Wise Bread, Get Rich Slowly and I Pick Up Pennies. May I also suggest that you incorporate changes gradually, so that you don’t burn out?
8. Seek utility discounts. Some have reduced rates for people in reduced circumstances.

Just in case

9. Got kids in school? Talk to the financial aid office; a change in circumstances might mean your scholar is eligible for additional help. (Avoid more loans, though.)
10. Still paying your own student loans? Learn about forbearance now, before you need it.
11. Know what’s out there. Go to Benefits.gov to learn about the Supplemental Nutrition Assistance Program and any other programs for which you might be eligible. Check local resources like food banks and public health clinics, too; visit the 2-1-1 page for links to services in your area. As with forbearance, find out these programs before you need them.
12. Seek a side hustle. Even a few extra dollars could be a huge help. See “Can’t get a job? get a microjob!” for specifics.
13. Think about boarders. Maybe a friend or relative (or a grad student) needs a room. Or check out home-stay programs like Airbnb.com and Roomorama; one couple I interviewed pays most of the mortgage this way.

Does all this sound drastic? Remember, you don’t have to do all of it – and you might find more suitable ways to cut costs.

Attitude is as important as any frugal hack. This is not about deprivation, but rather about smart use of available funds. If your income is reduced your outgo better shrink, too. Continuing to live the way you always had would be financial suicide: Those credit-card bills will keep coming in whether or not your ship eventually does.

Readers: Have you had to (or did you want to) cut spending? Got any advice to share?

Donna Freedman has been making a living as a writer for 31 years, the last eight of them as an online freelancer. She recently compiled her expertise into an online course called Write A Blog People Will Read; follow the link for a 25 percent discount.
Heart of Florida United Way is dedicated to changing lives for the better by helping families and individuals gain access to resources they need to stay afloat and succeed financially. For more information about Heart of Florida United Way’s efforts to improve employment and financial stability in Central Florida, visit www.HFUW.org.