Entering repayment for the first time can be overwhelming. There are also many common mistakes that borrowers make when they start making payments for the first time. This guide will help you avoid some of the biggest pitfalls.
Here are the top 10 things you should know:
1. Understanding the grace period.
Your loans enter repayment six months after you finish school, drop your enrollment below half-time or withdraw. These six months are referred to as your “grace period” and payment is not required. If you recently graduated, your loans may still be in the grace period when payments resume. If you graduated over six months ago, you will be required to start paying your loans in October like everyone else.
2. The role of your student loan servicer.
Your loans have been assigned to a student loan servicer. Your servicer is not your lender. The U.S. Department of Education is your lender if you have Direct loans, and they pay your servicer to manage your account and collect payments. Your servicer is a resource but not your friend. They will not have the time to properly counsel you on your options based on your specific circumstances particularly as we anticipate they will receive a huge influx of calls ahead of payments resuming. As a result, you want to do some research to explore your repayment options before calling them. If you haven’t already, find out who your servicer is, create an account, and review your information.
Refer to our Student Loan Repayment Checklist for a comprehensive guide.
If you have more than one federal student loan servicer, seek advice. Consolidation may be appropriate and can reduce the number of servicers you have to only one.
3. The default standard repayment plan:
If you are entering repayment for the first time, your loans will likely be placed in the 10-year standard fixed repayment plan. Don’t panic if the monthly amount is high and you can’t afford it. You can switch repayment plans at any time. If you are enrolling in an Income Driven Repayment plan, you can do the application yourself through studentaid.gov. If you cannot afford an Income Driven Repayment plan or choose to enroll in a traditional plan, you will need to call your servicer.
Refer to our Repayment Plans page to explore your options.
4. If you don’t have a job and can’t make monthly payments, you still have repayment plan options.
If you don’t have a job or have low income, consider enrolling in an Income Driven Repayment plan. These plans are based on your income and household size. This means that if you have zero or little income, your monthly payment can be as low as $0, and your loans will still be in good standing.
5. A cautionary tale about forbearance and deferments.
Traditional forbearances and deferments are meant to help borrowers suspend payments when they are struggling financially. These are temporary measures and should be used, for example, if you are switching jobs and need a 1–2-month reprieve. The problem is that many borrowers spend months and years in forbearance or deferments only to see their total loan balance increase to unmanageable levels and they have zero progress towards forgiveness programs. Don’t make this mistake. If your income is very low or non-existent, you are likely to find an affordable Income Driven Repayment plan. Enroll in that plan before taking a (non-COVID) forbearance or deferment.
Refer to our page on Income Driven Repayment Forgiveness (IDRF).
6. Don’t ignore servicer correspondence.
If you signed up for electronic correspondence, be sure you are getting emails from your servicer and FSA. Emails will usually contain a hyperlink or ask you to check your account inbox to read important information like a notice. Follow through and read what they have sent you. Many borrowers fall into delinquency and default because they’ve failed to read their correspondence and take the necessary action steps.
7. Federal student loans do not have a statute of limitations.
There is technically no reason why you should default on your federal student loans given the various repayment and forgiveness options. But if you do, get help to get out of default and know that unlike unsecured debt (such as credit card debt), federal student loans have no statute of limitations. This means the federal government has the power to impose involuntary collections on these loans until you die. They can administratively—without taking you to court—garnish your wages, intercept your tax refunds, and offset part of your social security retirement.
8. Develop a strategy.
The biggest mistake borrowers make is to enter student loan repayment without having a strategy to tackle their debt. While it is intuitive to think that repaying your loans in full is the strategy, that may not always be realistic, especially if you have a high loan balance (compared to your income).
Review our page on Three Strategies for Tackling Student Debt.
If you are entering repayment for the first time and live in New York, we highly encourage you to schedule a one-on-one counseling session with an EDCAP counselor. Contact us today!
9. If you are pursuing a forgiveness program, track your progress.
For over a decade borrowers had assumed they were making progress towards a forgiveness program only to find out they did not meet a specific program requirement, or they had been given wrong information about their eligibility. The federal government has made improvements and borrowers should be able to track their progress towards at least two key programs, Public Service Loan Forgiveness (PSLF), and Income Driven Repayment Forgiveness (IDRF). Make sure you meet the respective program requirements and as soon as possible submit any paperwork required. Borrowers pursuing PSLF can track their progress on their MOHELA account online. The Department of Education plans to add an IDRF tracker to the FSA account at studentaid.gov.
10. Hold your student loan servicer accountable.
If you are not getting the help you need or you are provided wrong information or advice by your student loan servicer, submit a complaint. You want to address any issues and potential wrongdoing as soon as you experience an issue to try and resolve it before time lapses.
Review section on What if Things Go Wrong.
Other helpful resources within this guide: