Recent Graduates: Time to Pay Student Loans, but… It’s Complicated

Originally published on brighthorizons.com  For students who graduated in spring 2024, federal student loan grace periods are ending, and first payments are due. Navigating the world of student loan repayment can be complicate, and this year is even trickier given the legal actions halting the popular SAVE federal student loan repayment option. Here’s what you need to know:  Preparing to Repay  Borrowers entering repayment should track down their loan information by visiting Federal Student Aid using the FSA ID they created to file the FAFSA. Then, borrowers should create accounts on their loan servicer website(s) and review their options, identify the available loan repayment option that works best for them, and prepare to repay.    For those who may have borrowed private loans, borrowers should refer to their loan documentation, student loan exit interviews, or review annual credit reports to obtain private loan information and create student loan servicer accounts on those web sites as well.  Before borrowers consider repayment options, this is an ideal time to create or review personal budgets or spending plans. Identify all necessary expenses and earmark money for a regular monthly payment; if possible, factor in a little extra to apply to the loan principal. There is no prepayment penalty for student loans. Choosing the lowest payment option might be tempting, but if borrowers can pay more or sooner, they can save money by paying less interest over time.  Repayment Options  There are several options available to federal student loan borrowers. The standard plan (120 equal monthly payments) is the default repayment plan but may not be the best options for all borrowers. If a borrower is unable to pay the standard payment, there are other options available.   Borrowers can identify the plan that best meets their needs by using the loan simulator tool at studentaid.gov.  In addition to the standard plan, borrowers may consider income driven repayment options that allow borrowers to make monthly payments based on a percentage of their annual income.  The income driven plans have specific requirements but are intended to offer the lowest monthly payment for borrowers.  The two income driven plans currently accepting applications are SAVE and IBR.Visit studentaid.gov to apply for or manage your income-driven repayment plan. Due to pending litigation around the SAVE plan, borrowers who apply for SAVE will be placed into forbearance, or a period of non-interest accruing payment pause, during which time payments will not be required until the legal matters are resolved. Those borrowers applying for IBR will be temporarily placed in forbearance until applications can be processed.   Borrowers may also consider a graduated repayment option that is also a 10-year repayment period but allows for lower payments in the beginning that will increase over the life of the loan. Many borrowers consider this a reasonable option if they expect earnings to increase over the life of repayment.   Other borrowers, often those with higher loan balances, may also consider an extended repayment plan which allows repayment over 25 years.  Payments may be fixed or graduated.   Private student loans are not eligible for these federal repayment options. If you're having trouble affording payments, reach out to your loan servicer about your options. You could also explore refinancing student loans for new terms and a potentially lower interest rate.   Loan Forgiveness  While many are hoping for some type of loan forgiveness as this has been a newsworthy topic of late, it is unlikely at this point. Instead, qualified borrowers are encouraged to consider existing student loan forgiveness programs. 

• Public Service Loan Forgiveness: forgives loan balances for those working in public service after 120 qualifying monthly payments on an income driven plan
• Teacher Loan Forgiveness: forgives up to $17,500 after 5 years of teaching in low-income qualifying school systems or agency
• State loan forgiveness: several states also offer loan repayment or forgiveness opportunities

Final Tips for Borrowers  The student loan landscape is quickly changing. The outcomes of on-going litigation can have an impact on borrowers. The following tips can help borrowers navigate student loan repayment: