With graduation season around the corner, you are probably filled with excitement to finally finish two decades worth of education and finally start entering the work field. Maybe you are currently struggling on the job hunt or feeling anxious at starting your first “adult” job.

But there is also a hurdle coming your way. Now that you’ve graduated, you have to start paying your student loans. While you may be tempted to put off thinking about it while you’re in your deferment period, it is important to start understanding your student loans so you know exactly what to do when repayment starts.

 

1.   Complete Exit Counseling

The first thing you need to do is complete the Exit Counseling for your federal loans. You may vaguely remember having to complete an Entrance Counseling at the beginning of the school year to obtain your loans. Now that you’ve graduated, you will have to complete the Exit Counseling.

So what is it? The Exit Counseling will provide details on your responsibilities as a borrower, list the total student loans you’ve borrowed, and provide you with a repayment guide.

Don’t worry if you haven’t heard of this Exit Counseling before. I promise you will get bombarded with emails to complete it. When you do get the email, make sure to update your contact information so you won’t miss payments when the time does come for you to start making them.

 

2.   Play with the loan calculator

Don’t just skip over the Exit Counseling, hitting submit on every page. One of my favorite tools they provide is the loan calculator that lets you play around with different repayment plans.

It shows you what your monthly payment will be, the length of your loan, and the total interest you will accrue for the duration of the loan repayment.

This is the perfect tool to get yourself in the mindset of paying off your loan and to find the plan that best suits you. So don’t just skip it over. The good news is, you can always come back to it if you need to.

 

3.   Find out your loan provider

One of the biggest confusions people have when graduating is finding out where to make payments to. Although you borrowed money from the federal government, you pay back your loans to the loan provider assigned to you. In my case, my loan provider is Nelnet so I make direct payments to their website.

Make sure you find out where your loans are held and start registering for an account. That way you can see your balance, find out when payments are due, and pay your loans online which is much more convenient than mailing a check every month.

Paying online also makes it so much easier and faster if you decide to make extra payments anytime you want.

4.   Decide if you want to consolidate or refinance

When I graduated last year I had no idea what loan consolidation or refinancing meant and at one point even thought they were interchangeable terms. They are not.

So let’s start with debt consolidation. If you have seen any of my debt statements where I list my loans and loan progress, you will find that I have several loans with different interest rates.

This is common to have because every year that you take out a loan will likely have different interest rates. When it comes to repaying your loans, keeping track of them may become a problem which is where loan consolidation comes to play.

Debt consolidation is combining your loans into one single loan with one single interest rate.

Consolidating will not change how much you owe or your total interest rate. It will average out your interest rates but the overall amount you owe will stay the same.

If you want to get a lower interest rate, you will have to refinance through a private loan. Just be aware that you will end up losing the benefits of federal loans such as deferment periods and student loan forgiveness if you refinance. I talked more in depth about whether you should refinance or not here.

While consolidating or refinancing can be a great option for some people, in my case I decided not to do either. I chose not to consolidate because I wanted to make extra payments each month targetting loans with the highest interest first, working my way down to loans with lower interest rates.

This would not be possible if I consolidated my loans which would lump them all into one giant loan with only one average interest rate.

I also chose not to refinance, and it came down to two main reasons. The first is I did not want to lose my federal loan benefits. The second is because my interest rate was drastically reduced with REPAYE (see #5).

If you are interested in how I came to my decision, I actually wrote about it on my Private vs Federal Loan: to Refinance or Not post.

5.   Choose your repayment plan

The final step before you start repaying your loans is to choose your repayment plan. If you choose to not refinance to private loans and stick with federal loans, you do have a couple of options when it comes to repayment plans.

There are income-based repayment options such as:

PAYE (Pay As You Earn): caps your monthly payments at 10% of your discretionary income while ensuring that monthly payments will be no higher than the Standard 10-year Repayment Plan. Only loans disbursed after Oct 2011 are eligible for PAYE repayment plan.

REPAYE (Revised Pay As You Earn): also caps monthly payment at 10% discretionary income and you can qualify regardless of when you took out the loan. The setback is there is no limit to how high the payment can be so it is possible to pay more than the Standard Repayment Plan.

IBR (Income Based Repayment): caps your monthly payment at 10-15% of discretionary income depending on when you borrowed the loan.

ICR (Income Contingent Repayment): caps your monthly payment at 20% of discretionary income or a 12-year standard payment, whichever is the lower of the two.

Personally, with the newer PAYE and REPAYE repayment plan, IBR and ICR are becoming less attractive as a repayment option. Especially if you are looking to find the lowest monthly payment, you will get it through PAYE or REPAYE.

You also have term-based repayment plans such as:

Standard Repayment: a 10-year repayment plan with fixed monthly payment.

Graduated Repayment: starts out with a lower monthly payment that increases every 2 years.

Extended Repayment: allows borrowers to extend repayment to 25 years while making standard or graduated monthly payments.

With these 5 quick steps on getting a handle on your student loans, there is no reason for you to procrastinate! Start now and worry less later.

Trust me, you’ll only get busier now that you’ve graduated so don’t wait on sorting out your finances.