When a student graduates from college, it marks a major accomplishment—the culmination of semesters' worth of reading, writing, studying, and test-taking. But the preparation and legwork isn't over—for student loan borrowers, leaving school also starts the countdown to repayment.
[Find out how to kick off student loan repayment.]
For six months after graduation (or after leaving school or dropping below a half-time credit load), federal Stafford loan holders enter a grace period in which they don't have to make student loan repayments. (For the federal Perkins loan, it's a nine-month period.) But that doesn't mean it's a half-year vacation from thinking about your student loan burden, experts caution.
"It's easy for people to want to forget about the fact that they might have some debt looming over them, but they need to plan and attack it head on," says Erin Wolfe, associate director of financial aid at Susquehanna University in Pennsylvania.
Instead, think of your grace period as a crucial building block to a solid financial future, recommends Joe Wilson, a wealth management adviser at TIAA-CREF. "The six-month grace period is a very important time for building good habits," he says. "It really charts the course for what they may face long-term."
Here are seven steps to take during your grace period to set yourself up for repayment success.
1. Track down your loans: Because student loans are usually taken out on an annual basis, you might have a variety of individual loans—which might even be from several different financial entities. If you have federal loans, start at the National Student Loan Data System to find your loan amounts, recommends Kevin Michaelsen, director of financial assistance at Meredith College.
Private loans may be trickier to track down, since there is no centralized database, notes Joseph Orsolini of College Aid Planners Inc. Try contacting your school for the specifics, Michaelsen says, and reach out to each of your private loan lenders (if you have more than one) to make sure you're clear on what you owe, how long your private loan grace period is, and what your monthly payments will look like.
2. Communicate with your loan servicer: Though you won't owe them anything for a few more months, begin the dialogue with your loan servicer now. Update your contact information so you're sure to receive your bills, and ask about any aspects of your loans that confuse you.
[Ask these 10 questions of your loan servicer.]
3. Start a budget: "Understanding what the student's overall budget is would be the most important part of the grace period," Susquehanna's Wolfe says. Map out any money coming in and going out, which could include a salary, rent, car payments, food, recreation costs, and more. Don't forget to factor in an estimate of your student loan payment.
It may even help to deduct a student loan payment each month during your grace period. You'll get used to putting that money away, Orsolini says, and it can help to keep your lifestyle in check so you don't miss the loan money once it's time to pay.
4. Explore repayment options: The standard repayment for a student loan is 10 years, but that's not your only option when it comes to managing your debt.
Many borrowers don't realize that they can extend their loan repayments and may even be eligible for federal loan programs that help to relieve some of their burden, says Kevin Fudge, an adviser at American Student Assistance. "It cuts across demographics—the lack of knowledge of their options is universal."
Ask your loan servicer if you qualify for federal loan relief programs such as Income-Based and Income-Contingent Repayment. You can also consider online tools such as SimpleTuition's PayBackSmarter, which allows you to explore the effects of different repayment plans, extra payments, and federal repayment programs.
[Read more about ways to manage student loan debt.]
5. Make interest payments: If you have an unsubsidized loan, interest will accrue throughout your grace period. Though you're not required to pay it off until you enter repayment, it's a good idea to do so if you're financially able. Accrued interest will be capitalized at the end of your grace period and added to the principal of the loan, increasing your debt.
Corrected 5/21/12: An earlier version of this article misidentified TIAA-CREF.