How Not to Move Back in With Your Parents

Student Loans, Scholarships & Debt Podcast Episodes

The Loan Repayment Timeline

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Roy Durnal, Director of Student Services at IU Bloomington, calls in on this week's episode with what happens with how your student loan repayment begins when you graduate.



Read the Show Notes

One of the most popular questions we get from student who want to meet with us or who are seeking advice, particularly about post-graduation, is how student loan repayment works. When does it start, and how exactly does it affect me? So, we’ve decided to provide you with a checklist of what you should know leading up to graduation and within a short while after you graduate when it comes to repaying your student loans. Here are some terms and steps along the graduation and student loan repayment timelines.

If you need help with this process, be sure to set up an appointment with someone in Financial Aid. If you think you get the basics but maybe would like to sit down with another student to talk about what this can mean for your finances, set up an appointment with the MoneySmarts Team.

 

Let’s start with some terms

Debt Letter: The notice you should you receive from IU every semester to let you know how much you have taken out in federal student loans since the beginning of your academic career

Grace Period: The amount of time between when you graduate (or drop below half-time enrollment status) and when your loan repayment starts - 6 months in most cases

Promissory Note: The legally-binding contract you sign in order to start taking out loans - a promise that you will repay your lender(s)

Lender: The company from whom you are borrowing your student loans; depending on the number of loans you have, this could be several companies

Interest Accrual: Interest is the amount you owe in addition to the primary amount you take out; accrual is the process of that amount growing over time

While you’re in school

  • When you take out federal student loans, you are required to go through Entrance Counseling, usually online. Most students tend to dismiss this because the results of it may not seem to matter until years down the road. We’re here to tell you that it’s worth your time to pay attention to your Entrance Counseling. If you already have loans, what we’re telling you should seem like old news because you’ve already heard it.

  • You are automatically placed on a Standard 10-year Repayment plan for your loans. This will be especially important when you start paying them back because it affects how much your monthly payments will be.

  • Pay attention to the Debt Letter notifications you receive every semester. They exist to help you be better informed on your student loans.

  • Keep tabs on how many loans you have taken out. If you don’t know if you have student loans or need to check in on how much you’ve already taken out (and how much you have left if you’re closing in on your maximum), refer to your Debt Letter and talk to Financial Aid.

  • Talk to your family. Sometimes, students have loans taken out in their names without realizing it because of a family decision that wasn’t communicated properly. While students can authorize parents as third-party payer’s on bills, when it comes time for repayment, this is debt taken out on behalf of the student for the student’s educational expenses, and it will be debt that affects the student’s credit.

  • Assess if you have the means to start repaying your loans before you graduate. There are no penalties for getting ahead, and it’ll lessen the amount of interest you pay once your loans go into full repayment.  At the very least, try to pay off the interest that is accruing while you’re in school.

  • Just before you graduate: Follow through on your Exit Counseling, and pay attention to the messaging. It’ll alert you as to what’s ahead and how the repayment process begins.

 When you graduate

  • Pay attention to the notices in the mail or your e-mail from your lender(s). Save them in the event that you will need to refer to them later.

  • Revisit your repayment strategy. If it was in your head prior to graduation, consider putting it down on paper so you can visualize your finances. You know the bills will be coming; so start thinking about how your repayment methods will affect you in the long run. Remember, the faster you can pay off your loans, the more quickly you can get out of debt and start allowing your credit to work for you. While you’re building credit in paying back your loans, getting out of debt fast will also open up opportunities for you to more easily take out a car or home loan in the future.

  • Anticipate the road ahead. If you still feel like you have no idea how much your monthly payments will be, try our Payoff Estimator.

  • Visualize the lifestyle you want to lead. Allow that to drive your repayment strategy.

  • Just because the grace period exists doesn’t mean you have to wait 6 months after you graduate to start paying off your loans.  If you have the means to start paying them off right after you graduate, do it! You can even talk to your lender about calculating your monthly payments to keep you on track with a more aggressive repayment plan.

What if I go back to school?

  • Your federal loans will be deferred - or put off - until 6 months after your graduate.

 6 months after graduation

  • Your first bill should arrive. If you find yourself surprised by how much your payment amounts are, this is a great opportunity to talk to your lender.

  • Because you have been automatically placed on the Standard 10-Year Repayment plan, you may also want to explore the other repayment plans out there to see if any of them might better suit you.

  • Before you get too hasty in trying to adjust your repayment plan though, take a look at this  Department of Education Loan Repayment Estimator with repayment options. Keep in mind that your finances will be in flux for the first several months after you graduate. So, really think about what your most consistent months will start to look like financially, and assess for the most manageable (not the most ideal) repayment plan. They all have their pros and cons.

  • If you find yourself in real financial hardship, not only are there 7 different repayment plans, you have other options as well for repaying your federal loans that might not be available to you with other loans.

That said, congratulations on your upcoming graduation! Ask us questions if you have them. We’re here to help you every step of the way.

 

Season 4: 04/06/2015