College graduates with student loan debt face a repayment process that can be difficult to manage, a fact highlighted by a 2020 research report from Pew Charitable Trusts. The study found that while 7 in 10 Americans surveyed in 2019 thought taking out student loans was reasonable given the benefits of a college degree, 89% were concerned about borrowers’ ability to repay that debt.
Today’s college graduates who have borrowed to pay for their education are looking for advice on dealing with the specific challenges they face in paying off their student loans. Some seek help from accredited and independent national non-profit organizations, which can be useful sources of information.
While graduate questions cover a range of topics, the most common concerns fall into one of the following areas.
Discover the basics
For recent college graduates, the majority of questions relate to the total amount borrowed on student loans, current balances, interest rates, payment due dates, and minimum amount owed each month.
In addition to wanting to understand how to find student loan balances, graduates also have questions about how to contact the federal student loan services that manage the accounts or, for private student loans, the lender. Graduates who have taken out federal student loans also seek to understand grace period policies so that they can take advantage of this time to develop a comprehensive financial plan that works within their budget.
Graduates looking to document their student loan details can find information from a variety of sources including the college or university financial aid office, their StudentAid.gov account, loan officers, or lenders. and the United States Department of Education. National Student Loan Data System, or NSLDS.
Repayment difficulties due to financial instability
Another set of concerns is how to handle loan repayments in the face of financial instability. Whether it’s a delay in employment, a job that resulted in lower than expected pay, or financial challenges due to changing life circumstances, financial instability is a significant barrier to repayment. for many recent college graduates.
Some graduates describe issues with managing payments immediately after graduation, particularly private student loans, which typically do not offer a grace period. Some borrowers face financial barriers early in their careers. In such cases, student loan counselors can help them take a look at their entire financial situation and chart the way forward.
These conversations often begin with crafting a simple monthly budget that tracks income and expenses such as housing, transportation, child care, and any payments borrowers face due to other debts such than credit cards. The focus is on how much the graduate can afford to start repaying. Once the full financial picture is assessed, it becomes clear how much discretionary income can be allocated to student loan payments.
It is only after this budgeting exercise that a borrower can understand their best options. Depending on what a borrower can check using tools like the Department of Education’s online loan calculator, options for federal student loans may include temporary relief from payments through a deferral or forbearance, a phased repayment plan, an extended repayment plan, a student loan consolidation or other alternatives.
Before deciding what action to take, a borrower should seek to understand the pros and cons of each approach given the specifics of their overall financial situation.
Eligibility for Income-Based Repayment Plans
New graduates are also looking for clarification on how to change repayment plans, as well as how each option affects credit scores and credit history. Many graduates have questions about income-based repayment plans, which are relief options available to eligible federal student loan borrowers who are struggling to keep up with their payments.
Some recent college graduates said they were unfamiliar with income-driven plans and needed help understanding the criteria. Graduates typically say they need guidance on navigating the app and in some cases required recertification processes with plans that reduce or delay payments.
Graduates should understand that almost all federal student loans are eligible for an income-based repayment plan, and those that are not may become eligible if the borrower combines multiple federal student loans under the federal loan program. direct consolidation.
College graduates who are considering getting married often research details of the so-called “marriage penalty” which can be a factor when calculating repayment amounts under an income-based repayment plan. Counselors help borrowers understand the implications of these plans depending on how a couple files their taxes.
Various income-focused repayment plans can extend the repayment term of federal student loans from 10 to 25 years, meaning borrowers will pay more interest over time. It is important for graduates to assess their full financial situation to see the pros and cons of different income-based repayment plans based on their specific situation.
Options to advance past the default
Another concern college graduates bring to loan counselors is how to understand their options if they don’t pay off their student loans. For federal student loans, the advisers provide an overview of the main ways to get out of default, including loan rehabilitation and consolidation. Again, the focus is on how each process will affect the borrower based on a full financial picture of current income, expenses, and debt.
Some borrowers also want to know how long it would take them to complete the loan rehabilitation or how quickly they might apply for a loan consolidation.
Student loan counselors outline key considerations that apply to each individual, such as timing of payments or how to contact debt collection agencies, if necessary.
Graduates concerned about private student loan default often seek advice on understanding the terms of the contract, as each private student loan has different loan agreements. Some banks that offer private student loans offer forbearance to help borrowers catch up on late payments and avoid default.
In some cases, borrowers may be able to refinance private student loan debt for a lower monthly payment. As with a federal student loan, when a private student loan is in default, the borrower’s credit rating takes a hit, making it more difficult to obtain a new loan. Financial advisers specializing in student loans examine a borrower’s individual financial situation to recommend the best approach.
Ways to avoid student loan defaults, which lead to default, include making payments on time and, if the financial situation is more difficult with federal student loans, requesting a deferral or forbearance. Other options include loan consolidation or, for federal student loans, finding income-based repayment plans.
Obtaining a university degree is an important step. Take the time to prepare for success when it comes to managing your student loan debt. From participating in federal advice on student loan exit and maintaining open communications with your loan officers or lenders, to exploring opportunities with employers who offer the benefit of loan repayment assistance students, the more you know, the better the way forward.