How to Manage Your Student Loans
A Step-by-Step Guide to Keeping Up With Your Payments
Student loan debt can be a heavy financial burden that takes a long time to shed. In fact, according to the National Center for Education Statistics in a 2017 study of student borrowers who began their post-secondary education in 2003-04, just 20% had repaid their loans in full within 12 years. By contrast, 27% of that same group had defaulted on at least one student loan, which can have serious consequences.
To ensure you make repayment as affordable as possible and don't damage your financial situation for the long term, you'll want to take control of your student loans as soon as possible. These steps can help.
- Know who your lender and loan servicers are to effectively manage student debt.
- If you have a grace period after graduation before you must begin making payments, know when it ends so you can submit your first payment on time.
- You may have a choice of repayment plans if you have federal student loans.
- Forbearance and deferment can help you to pause payments, and are better options than defaulting on your loan, though interest may continue accruing.
- Consolidating or refinancing your loans are also options, but be wary of any borrower protections you may lose.
Identify Your Lender, Servicer, and Repayment Plan
The first key step to managing your student loans is to know where your loan came from, whom you are paying, and what amount you owe.
To find those things out, first identify your student loan servicer. Your servicer is the company in charge of managing your loan repayment process. It processes your payments and provides you with customer service if you have a question or an issue, such as needing to change your payment plan.
If you have private student loans, chances are the company you borrowed from is your servicer. But if you've taken out federal loans from the Department of Education (DOE), your servicer will be one of several companies the DOE contracts with to handle federal student loans. You will not get to choose your federal student loan servicer.
Your servicer for federal student loans may be changing as part of a consolidation. You'll be notified before the change, but be aware you may have a new company to pay by March of 2022.
To identify all of your loan servicers, including those managing your federal student loans, loans your school may have provided, and loans from private lenders:
- Talk with your college’s financial aid office: It should be able to provide you with details on your loans, especially if you are still in school or if you secured loans through your college directly.
- Use the National Student Loan Data System (NSLDS): The NSLDS provides comprehensive details on all your federal loans, but you'll have to create an account, if you don't have one.
- Obtain a copy of your credit report: You can get one free copy each year from each of the three major credit reporting agencies by visiting AnnualCreditReport.com. The report should have details about all your loans, including your balances and payment history.
Once you've found your loan servicer(s), you can check with them about your repayment plan. You should have a choice of repayment plans, including some tied to the amount of monthly income you make.
If you have private student loans, you'll have to repay your loan according to the schedule agreed upon when you borrowed, and will have either fixed payments (if you chose a fixed-rate loan) or payments that could vary as rates change (if you chose a variable-rate loan).
If you choose a student loan repayment plan with a shorter repayment timeline, you'll save money on interest over the life of the loan, but may have higher monthly payments. If you opt for a longer loan term, your monthly payment will be lower, but total interest costs will be higher.
Know When Your Student Loan Payments Start
If you haven't started making payments yet, you need to know when your first is due, so you can be prepared.
In most cases, if you have federal student loans, you won't need to make payments while you are going to school at least half-time. You'll also have a grace period that typically lasts for six months after graduation.
While you’re in school, private lenders generally offer you the choice of deferring payments, paying interest-only, paying your full monthly payment, or making a low fixed payment. Most private lenders offer six-month grace periods, too, although you may have up to nine months or longer to begin payments under some circumstances—especially if you've obtained loans to attend graduate or professional school.
For most loan types (except direct subsidized loans), interest begins accruing as soon as your loan is issued, even if payments don't begin until months or years later. This means if you don't at least cover interest while in school and during your grace period, you'll have a larger balance to repay when you get started.
Use Forbearance and Deferment
Take action quickly if you can’t make your payments—missing a payment could damage your credit score and lead to defaulting on your loans.
The good news is, you may have several options to pause payments.
If you have federal student loans, temporarily postponing payment through deferment is an option if you're:
- Enrolled at least half-time in school or are in your post-graduation grace period
- Unemployed or experiencing economic hardship
- Participating in a qualifying internship or residency program
- Disabled and participating in an approved rehabilitation program
- On active duty in the military
You also have options for forbearance, which also allows you to pause payments. Forbearance is available for federal loans under a wider range of circumstances than deferments.
Some private lenders offer forbearance, though usually for a shorter time than is available with federal loans. Some also offer unemployment protection, which can help you put your loans into forbearance if you lose your job through no fault of your own.
Deferment differs from forbearance in that you do not continue accruing interest on direct subsidized loans. You will, however, continue to accrue interest on direct unsubsidized loans while in deferment.
If you pause payments with a private lender, whether the lender refers to it as deferment or forbearance, interest will most likely always continue accruing.
Consolidation and Refinancing
If you have multiple loan servicers and want to make repayment simpler, consolidation or refinancing may allow you to do that. Consolidation and refinancing both also allow you to change your loan servicer and may make different repayment options available to you. However, the two processes aren't the same.
Consolidation involves securing a direct consolidation loan from the DOE. You can also consolidate eligible federal student loans, and your interest rate won't change as part of the process—your new loan will have a rate that's a weighted average of your old loans.
When you consolidate federal loans, you may change servicers but will maintain all of the borrower protections available to you that are exclusive to federal loans. You may also get access to payment options that were not available before, including a repayment term lasting up to 30 years, or an income-contingent option for parent PLUS loans.
Refinancing, on the other hand, can only be done with a private lender. It can have the effect of consolidating multiple loans because you can use your new refinance loan to pay off multiple existing debts.
You can refinance federal student loans, but doing so may mean giving up important borrower protections.
Refinancing can change the interest rate on your student loans, so one of the main reasons to pursue this approach is if you can qualify for a lower rate than you're currently paying. You can also change your repayment terms by applying for a refinanced student loan with a different repayment timeline.
What If You Can’t Make Your Payments?
If you can’t make your payments, do not skip payments—it could only make your situation worse. Avoid declaring bankruptcy, too. In many cases, it is not possible to reduce your student loan debt through bankruptcy. You should also avoid refinancing federal loans without considering the downside—it may lower your monthly payment, but you may lose borrower protections.
Instead, if you can’t make your loan payments, your best option is to talk with your lender as soon as possible.
If you have federal student loans, you may be able to:
- Switch your repayment plan to a more affordable one
- Put your loans into deferment or forbearance
- Refinance with a private lender after considering what benefits you may lose
If you have private student loans, your best options may be to:
- Put loans into forbearance, if your lender allows it
- Refinance with a new lender offering a lower interest rate, a longer repayment timeline, or both
Whatever you do, don’t wait until you miss a payment to take action, as this could damage your credit for years to come. Be proactive in managing your student loans and find the path to repayment that works best for you.
National Center for Education Statistics. "Fast Facts - Student Debt." Accessed Nov. 5, 2020.
U.S. Department of Education. "We’re Taking Steps to Improve Federal Loan Servicing." Accessed Nov. 5, 2020.
Federal Student Aid. "Student Loan Repayment." Accessed Nov. 5, 2020.
Federal Student Aid. "Subsidized and Unsubsidized Loans." Accessed Nov. 5, 2020.