You vaguely remember signing a form every year at college registration time. Now that you’ve graduated, it’s all become painfully clear–those forms were promissory notes detailing your student loan obligations. Your loans aren’t going away, and you’ll want to repay them as quickly as possible. So whether you have a small sum or a small fortune to pay off, it’s helpful to brush up on some student loan basics.
After you graduate, you’ll probably have a lot to think about–deciding where to live, finding a job, renting an apartment. Fortunately, you don’t have to add student loans to your list, at least not right away. Thanks to the grace period built into most student loans, you’ll likely get anywhere from six to nine months before you need to start repaying your loans. This gives you some breathing room to get financially settled.
Gone are the days when your only repayment option consisted of fixed, equal payments spread over a 10-year term. Though this is certainly one option–and typically the fastest way to pay off your loans–it’s not the only option. Because of the growing number of students who require student loans to finance their education and the ever-increasing amount of their debt, the federal government offers several flexible repayment plans to help students manage this large financial responsibility. (Private student lenders may or may not offer the following plans–check with your lender.)
To pick the best repayment option, you’ll need to determine the amount of discretionary income that you have to put toward your student loan each month. This, in turn, requires you to make a budget and track your monthly income and expenses.
In addition to inquiring about repayment options, ask whether your lender offers any special discounts for prompt loan repayment. For example, some lenders may shave a percentage point off your interest rate if you allow them to directly debit your checking account each month. Or, they may waive some monthly payments after receiving on-time payments for a certain length of time.
At times, you may find it financially difficult or impossible to repay your student loan. The worst thing you can do is ignore your payments (and your lender) completely. The best thing you can do is contact your lender and apply for a deferment, forbearance, or cancellation of your loan.
Remember, these things are never automatic. You’ll need to fill out the appropriate application from your lender, attach any supporting documentation, and follow up to make sure that your application has been processed correctly.
If your idea of organization is stuffing your random assortment of student loan papers into your sock drawer, or not keeping them all, think again. Repaying your student loans is a serious matter, and you’ll need to stay on top of it. It’s important to keep accurate, accessible records. Open a file folder for each loan, and file any accompanying paperwork there, such as copies of promissory notes, coupon booklets, correspondence from your lender, deferment and/or forbearance paperwork, and notes of any phone calls.
On the bright side, you might be able to deduct some or all of the student loan interest you pay on your federal tax return. In 2018, if you’re a single filer with a modified adjusted gross income (MAGI) under $65,000 or a joint filer with a MAGI under $135,000, you can deduct up to $2,500 of student loan interest that you pay during the year. A partial deduction is available to single filers with a MAGI between $65,000 and $80,000 and joint filers with a MAGI between $135,000 and $165,000.
There are a couple of hurdles, though. You must have incurred the loans when you were at least a half-time student, and you can’t take the deduction if you’re claimed as a dependent on someone else’s tax return.
If you paid $600 or more of interest to a single lender on a qualified student loan during the year, you should receive Form 1098-E at tax time from your lender, showing the amount of student loan interest you’ve paid for the year. For more information, see IRS Publication 970.
Read more about saving and paying for higher education in our other blog posts about college.