If you borrowed student loans to finance your legal education, you’ll need to make some decisions about your student loans soon after graduating. Follow these four steps to keep your payments affordable, protect your credit rating, and avoid paying too much.
Give your loan servicers your new contact information. A loan servicer handles billing and accepts payment on your loans. Look up your federal loan servicers on the National Student Loan Data System at http://nslds.ed.gov. Find any private student loan servicers by reviewing your free credit report from annualcreditreport.com. Be sure to stay in touch with these loan servicers. Avoid late fees and other headaches by reading and responding to correspondence from your loan servicers.
Figure out when you have to make your first payment on each of your loans. Federal student loans including Unsubsidized Stafford and GradPLUS loans give you a six-month grace period following graduation. Perkins loans allow nine months before requiring payment. Private student loans don’t always have any grace period so double check your promissory note or contact your loan servicers for more information about when payment will be due.
Evaluate whether to consolidate your loans. Consolidation is optional and unnecessary for a lot of today’s graduates. However, some grads (especially those who borrowed student loans before 2010 and those planning careers in public service) will benefit from refinancing their student loans into a Federal Direct Consolidation Loan. If you have older variable interest rate loans or are seeking Public Service Loan Forgiveness, read the information about consolidation provided by the US Department of Education at http://studentloans.ed.gov and ask your financial aid office to help you determine whether consolidation is right for you.
Choose the repayment plan that best fits your circumstances. Federal loans offer a lot of different repayment plans. To decide which one is right for you, consider your current financial situation, your expected income, and your goals. Choose the repayment plan that fits your current circumstances and reevaluate your options periodically and whenever your circumstances change (for example you change jobs, get married, or start earning more).
Evaluate the various federal student loan repayment options including the Standard Repayment and Income-Driven Repayment plans:
- Standard 10-Year Repayment results in fixed equal monthly payments over 10 years. You’ll pay off your loans quickly so you pay less interest, but monthly payments are likely to be high. There is also no penalty for early repayment so if you are in a position to do so, you may save interest charges over time by paying more than is required. Standard repayment can be a good choice for those whose income and financial circumstances allow them to repay their student loans aggressively.
- Income-Driven Repayment Options provide for reduced monthly payments based on a percentage of income. There are several income-driven plans including Pay As You Earn (PAYE) and Income-Based Repayment (IBR). PAYE and IBR are available for borrowers with relatively high debt-to-income ratios. Payments made under the income driven options can count toward Public Service Loan Forgiveness. If you need more time to repay your loans, you need a reduced monthly payment, or you plan a career in public service, an income-driven repayment plan may be right for you.
The US Department of Education provides tools for managing federal student loans including access to your account information and a repayment estimator available at studentloans.gov
Private student loans have fewer repayment options. If you have private loans, look at the terms of repayment in your promissory note and ask the loan servicer for more information.
HEATHER JARVIS is an attorney providing educational resources and training for student loan borrowers and is the founder of askheatherjarvis.com.
Vol. 42 No. 9