You finished college a few months ago and you’re trying to #adult a little bit. You start thinking about student loans. “All I really have to worry about right now are loans, but I don’t even know where to start. What website do you go to when you’re paying off student loans? How do I make payments? When do I need to do that?” We hope to answer a few of those for you.
When Do I Start?
The first thing you may be asking is when you should start thinking about student loans. The answer is the second you borrow them but ,more realistically, you should be thinking about them when you’re nearing graduation. Your loan payments will likely have a significant impact on your budget after college and depending on the type of loans you may have to start paying them back within weeks after graduation.
Step 1: Start thinking about loans now. Pick a time in the next week, give yourself a couple uninterrupted hours and follow the next few steps. Starting is the hardest part.
What Information do I Need and Where is it?
Sometimes it’s not enough to want to pay your loans. You’ll actually need information about the loans to be a responsible borrower.
Step 2: Identify the types of loans you have (subsidized, unsubsidized, federal, private) and write them down somewhere. Excel works best. If you don’t know what federal loans you have or their interest rates use the Federal Student Aid website to find out.
Loan Type Interest Repayment Total Payment
Mohela Subsidized 5.6% 11-1-15 $10,000 $115.10
Mohela Unsubsidized 6.8% 11-1-15 $4,000 $50
Sallie Mae Unsubsidized 7.9% 6-1-15 $9,000 $108.72
Identify subsidized vs. unsubsidized. You may have heard these terms but aren’t familiar with what they mean. A subsidized loan is awesome because all the interest you accrue during school (often 4 years) and the grace period (6 months) is covered by the department of education. You become responsible for interest after the 6 month grace period ends.
Unsubsidized loans will have similar interest rates but all of the interest accrued during your studies and the 6 months before your first payment is due are ADDED to the loan amount. This means the amount you originally borrowed to pay for tuition, books and housing is only one part of the amount you’ll need to pay back.
Identify the Interest Rate. Each loan will have a specific interest rate, often determined by the year you borrowed it. This will be on the lenders website and in any loan notices you received when you took out your loans.
Identify the start date of the repayment cycle. Most loan websites will have a repayment date listed, but it might be inaccurate. These dates are only firm once you’ve gone through exit counseling with your financial aid program, essentially letting the lender know when you’ve officially finished your school work. Keep in mind that federal loans, both subsidized and unsubsidized will allow a 6 month grace period before loans are due. Private loans may have a similar set up or may require much earlier payment. If you’re not sure when the repayment date begins, call the lender to find out.
Record the total loan amount and the minimum payment. These should also appear on the website and the minimum payment may fluctuate if you decide to pay a little early. If you have the opportunity to pay off some loans during a grace period, you’ll actually lower the required monthly amount. This could be helpful if you lose a job or your monthly expenses go up after your grace period is over.
Which One Should I Pay First?
Now this question has a lot of answers, but I’m going to start with the most practical. Whichever one is due first is probably where you should start.
Any private loan that doesn’t have that 6 month grace period, even if it’s a lot smaller than all the other ones, should get your first payments. You’re fighting two enemies with this loan, time and compound interest. You don’t want the interest to be added to your principal, so if you’re able to keep that interest in check AND pay down a lot of principal before you’re required to start working on your other loans, that will have a huge advantage for your financial life.
Here is my simple list of how to prioritize your loan payments.
- Make all minimum payments.
- Work on unsubsidized loans first.
- After minimum payments direct all extra income toward the loan with the highest interest rate.
Step 3: Create your priority list. Regardless of your approach, if you have loans prioritized now you’ll be more motivated to tackle loans in addition to the minimum monthly payments.
Picking up the phone, asking for help and being proactive will be your best answer when you’re wondering what it takes to start paying off student loans.
Any other helpful information about loans that should go on the simple spreadsheet? How else might you prioritize loan repayment?