Everything You Need to Know About Repaying Your Student Loans

For about 1 million college students, including many members of the Class of 2016, student loan payments will start coming due on Nov. 1. If you’re part of that group, you may find yourself in unfamiliar territory—no matter how well college has prepared you for life’s other challenges. To help, we have collected Money’s best advice on the subject. Here are answers to some of the most common questions that may be on your mind.

Why are your student loans coming due now?

Federal student loans start to come due six months after you leave school, whether you’ve graduated or not. So if you graduated in May, now’s the time. Private loans can be on a different schedule, so you’ll need to consult your loan documents.

Which student loans should you pay first?

You’ll need to make the minimum monthly payment on all of your loans, or you’ll incur late fees and possibly damage your credit rating. If you have any money left after that, put it toward the loan with the highest interest rate. Here’s more advice on smart repayment strategies.

What if you can’t afford to pay?

Call your loan servicer (the company that sends your loan bills and collects your payments) and explain the situation. You may be eligible for deferment or an income-based repayment plan.

What is deferment?

The federal government offers borrowers who are having money troubles two ways to legally suspend their student-loan payments: deferment and forbearance. Federal loan servicers are allowed to grant up to three years worth of deferment to borrowers who are unemployed or unable to find full-time employment. Deferment is the most advantageous way to take a break from payments during hard times because the government will not add any additional interest to any subsidized loans (though interest will keep building up for unsubsidized federal Stafford or Grad PLUS loans). If you cannot get a deferment, you can ask for forbearance. You automatically qualify for 12 months of forbearance on your federal student loan if the total amount you owe each month for all the student loans you received is at least 20% of your total monthly gross income. But interest on all your loans will keep building up during forbearance, which means you will owe much more by the time your bills start again.

What is income-based repayment?

Also referred to as income-driven repayment, this is an arrangement that links your minimum monthly loan payments to how much you can afford to pay. The most popular federal plans cap your payments at 10% of your disposable income (whatever you earn that exceeds 150% of the poverty line; which is currently about $17,000 for a single person). After 10 to 25 years of payments, depending on your job, you may be eligible for forgiveness of your federal student loans. There are currently several different income-based repayment plans to choose from.

What is forgiveness?

Forgiveness wipes out any remaining federal student loan debt you have. You will not have to make further payments, no matter what the remaining balance was after your final payment. Remember you can only get forgiveness if you sign up for an income-driven repayment plan and make at least 120 on-time monthly payments (or at least 240 if you are not working in a public service job).

What if you default on your loans?

Not paying your student loans can be far more expensive in the long run than paying them. Your loan’s interest will keep building up, and the lender will start to charge you late and collection fees. Eventually, the lender can start to garnish (or deduct money from) your paycheck. If you wait long enough, the government can, and will, even deduct money from your Social Security income.

What if you declare bankruptcy?

Unlike many other types of debts, it is very difficult to get student loans discharged or reduced by bankruptcy courts.

When does it make sense to refinance student loans?

If you have a steady job and a solid credit score, you can search on sites like Credible.com for lenders willing to refinance your current high-interest student loans at a lower rate. Refinancing high-interest private loans can save you a lot of money. But consider refinancing your federal loans only if you can get a significantly lower rate, because you’ll be giving up their repayment flexibility and forgiveness options, which are valuable in their own right.

For more advice about choosing a college, paying for college, and how to succeed after college, visit the new Money College Planner, with our exclusive “Find Your Fit” tool.