Suze Orman TwitterSuze Orman FacebookSuze Orman YouTubeSuze Orman LinkedIn
View Blog & News List

What Every New College Grad Needs To Know About Repaying Student Loans

August 13, 2015 at 12:00 AM

Falling behind on your student loans is one of the worst financial mistakes you can ever make. The penalties and fees if you fall behind, and into default, can add thousands of dollars to your bill. And there’s pretty much no way to escape this obligation. Student loans are nearly impossible to get discharged in bankruptcy court. Moreover, if you manage to make it to Social Security retirement age and still have a federal student loan balance, the government can take some of your monthly benefit as payment.

I can’t stress this enough: recent college grads are in a make or break moment. Get on top of your student loans right now and you will be in great shape. But if you don’t get a handle on things, you will be digging yourself a very big financial hole.

Here’s how to ace your federal student loan repayment test. (If you have private student loans, contact your loan servicer ASAP and make sure you are up to speed on exactly when and how much you need to start repaying.)

  1. Start repaying your loans within six months of leaving school. Federal loans come with a six-month Grace Period after you leave school, when you aren’t yet required to start repayments. But please understand, interest will continue to be added to your balance if you have an unsubsidized Stafford loan. Advice: Start repayment ASAP to keep your balance as low as possible.
  2. No job yet? You still need to start repayment, or ask for a delay. The federal government expects the payments to start no later than six months. No excuses. Now if you’ve yet to land a job, or have an illness, or are heading back to school you can apply for deferment or forbearance, where your payments may be suspended (though once again, the interest meter keeps running.) But you must apply! Learn more about student loan deferment and forbearance.
  3. Aim to pay back your loan in 10 years. There are a few different repayment plans that if you meet certain income-eligibility requirements, allow you to stretch repayment out over 20 or 25 years. In general, I don’t recommend going with longer-term repayment schedules, as you will be stuck owing a lot more interest over the life of the loan. Moreover, while it’s true that any remaining balance after 20 or 25 years will be forgiven, the entire amount that is forgiven will be reported to the IRS as taxable income. So you could have one fat tax bill! One exception: if you plan on having a career in public service a longer repayment can make sense. (See #4 for details.)
  4. Use a longer repayment schedule if you plan to work in Public Service for at least 10 years. Under the Public Service Loan Forgiveness Program, your loan balance will be forgiven after 10 years of payments (120 on-time payments) and you will not owe any tax on the amount that is forgiven. For this reason, it makes sense to apply for an income-based repayment plan with a longer payback period.
  5. Automate your payments. I don’t want you ever--and I mean EVER--missing a payment. That’s a slippery slope that can be incredibly expensive to climb back up. Please set up an automated direct payment from a bank account to your loan servicer.

Tag Cloud

enjoy saving Easy Life Insurance term insurancecan you afford itinsurance mistakehealthy retirement blood pressureswitch to spouse coverageAARPFICO credit score credit card mortgageStudent DebtForeclosureignore 6 month grace period CPI-WMinor Children reduce interest ratecharges on credit cardlow-cost index mutual fundDurable Power of Attorney for Health Caredangerous retirement planhome related tax break bonus traditional vs roth 401(k)pay high rate off firstpoint cost offset by savingsAdequate Auto and Home Insuranceinterest capitalization8 month safety netstandard rateclosing costs 2% of loanForbes Top 10credit report20 to 25 times annual incomeonly offered while employed Financial10% donate to charitylow credit scoretelevision hosthome buying seasonpowerfulborrowing plan compare provider pricingbuy down balance transfer iffy incomeFederal PLUS loanincrease emergency savingsMortgage Credit Availability Indexstay positivesetup automatic savings withdrawlive below your means20% down payment avoid feesis it kind?15 year mortgagePrime Rate Increasepublic service loan forgiveness programshorter payback periodconfident of solution3 step financial road mapmeet monthly schedule vacationcnbc alarm clockprotect your familycontribute household expenses get credit carddental savings planbig results Willmortgage disclosurepeace of mindsave moneyhighest possible benefitchildren's book30 year mortgage get the most out of social security college graduateStudent Loanfinancial aidWarner Bros Television Groupleave a legacylower mortgage intereststudent loan repaymenthome buying budgetlow down payment20% equitymobile appFinancial Educatorno private loansInfluentialsThe Suze Orman ShowSave Us Moneyterm life insurancemarriage inequalityverify retirement plan with HR or plan sponsordon't buy wantsoverspend on nights outknow before you oweadjust allocations Financial Systemat worst still pay 75% benefitmax employer matched 401(k) contribution2017 Taxeshome insurancecar leasinglower premiumdental insurance Sandy Hook Elementary SchoolHSA tax savingsfinancial fearsnot gender specific social securitydon't ignore open enrollmenthome buying mistakesno waiting periodCommencementLong Term Care premiumsdon't spend 8 month emergency fundHoliday Shoppingoverspend on giftssocial security not going brokeno sneaking in feesfinancial argumentsEric Dodge holiday spendingwomen long term caremax benefit coveredsavingsdream schoolmultiple lenders3 bucket approachSuze Orman spouse Kathy Travisspring summer Final Goodbyeunexpected expensepermanent life insurancemental healthhealthy retirement weighthome loan credit score below 740 long term goalcouple financesdon't do five year car loanlow mileage discountgrandchild summer job IRA contributionpreexisting condition not coveredshop online guaranteed level term policySuze is my biggest mentordoctors in networkbest loan deal eight month living expense no late fee pay 100% cashmortgage brokerbuying car 2016high premiumswrite new goalanticipated salarycredit managementquick closingmake saving a pleasureBankETF'snegotiate points with bank or sellerMotherno life insurance financially irresponsiblepercentage of women widowed 75-84Moneybudgetbuy homelong term carebest interest ratesfour steps to retirement savings buy home you can afford10 year repayment plan pay off debtteach importance of helping othersLTCi ASAPcredit utilization rateretirement planAccuQuote.comrequired disclosurepresident Obamarising home pricesone credit cardemployer funding HSAdon't cover cosmetic dentistryPrime Rate Rise 2015emergency fund savingsAmericans don't use all paid vacation timefederal student loan deferment be good exampleworst financial mistakeretirment savingsFinancial Cliffunsubsidized Stafford loanreal estate marketitemized deductioncar buying mistakesfinancial goal phrasefamily save at least $100 monthlyonly refinance if it payswives should be involved in retirementautomate student loan paymentsstandard deduction Bill and PennyWashingtonCredit Card Interest RateCivil Rightsfocus on needsraise insurance deductibleRetirement Incomeage appropriate chorerent vs buyback door Roth IRAcommitpositiveARMMust Have DocumentsFiscal ResponsibilityHDHP's are not badnon conventional route3 savings buckets mortgage interest tax deductionRichAuto Savings 20% down paymentreduce withholdingUniversity of Illinoisgrandparent IRA contribution monthly benefit Staffords this year have a fixed 6.8% interest rateMarlo Thomasspecial saving accountno retirement funds for down paymentBeautyshort term goal pay interest while in schoolhigher monthly paymentverify wellness screening and programsSelfishFree Debt EliminatorFHA loan feesprotect dependent repay student loansGoodbyebad decisionsco-sign contribution prescription tierclosing disclosureSandy Hook Promiseinitial tax break insurance yearly reviewhome ownershipstudent loan repayment planStock InvestmentsNew american Dream don't extend mortgage no apologycut monthly cellular bill19 years cash flow problemdon't use allowance as bribewomen outlive menescrowFederal Stafford loanInterestgift not loanhigh credit score discountHoliday Seasongift grandchild IRA contributionRetirement Savings15-year refinance dealGay Couplesbe true to yourselffraudulent returnstudent loan debtSchool of Social WorkGiftsRoth 401(k)social workPay Off Debt Before Retirementallowanceemployer offered life insuranceCNBCdepreciating asset 2015 record year car salesSuze Orman's Money WarsaffordabilitySuze Orman ScholarshipteensHDHP's are good for youfinancial concernlet them have 50% controlbuying a carhigh deductible health care planSatisfyingdon't blow tax refundcommunity bankchildren under 18IRA contribution gifted moneystaycationburn outbetter loan dealsdon't charge a pennylower overall drug costbecome member LTCHow To Build Creditmortgagecost of capitalization calculatorstretch out haircut appointmentsAlarm Clockno negativityhealthy you2016 adjust withholdingalways use all paid time offtax ID theftfinancial independenceSuze approvedretirementphysical healthrequire chore in exchange for allowancekids schedule paymentsexercise reguarlyis it true? create new truthCiti Simplicity Card FRAhigher insurance deductibleraise your deductibledeath benefit 20 to 25 times annual incomesecured cardhome budget after tax costbetter termslearn good financial choicescar loanplandeath benefit needs for familyLoveincrease retirement contribution rateGay Rightssecure creditFederal Funds RateConventional loan PMIgraduationloan is giftheartachepay more than minimumMoney Marketsave dental discount planone annual feeSuze changed my lifeadult childrenback-to-school budgetdon't defer interest paymentsWall Streettoo expensive school!00% tuition paidBaby Boomersprotect loved ones is it necessarysame-sex marriageHigh Credit ScoreFundssmall changes would you decline a bonussuccessorigination feesprovider of financial supportpaid in fullcostly insurance mistaketeach your child good money habitsUrbana-Champaignzero rate transfer dealsrefinancepaying for collegelong-term care reduce monthly paymenttitle insuranceARM Cautiondebit cardmarriage financial responsibilityTeachidentity theft3% debt transferred Communication Skills Long Term Care Insurance under 18 financial giftHolidaysavings pleasurefull retirement agegay marriage ban end Florida dear suzeno tax on withdrawls401(k) ContributionsresponsibleLifestyleno fee transferconfidentFixed Rate Mortgage8 Rulesbetter loan ratestaxesmanage student loansnear historic lowsstore credit cardslousy investmentraise deductibleskid borrow firstFinancial Solutions For YouSuze Orman40% toward financial goalPost-Divorce4 Must Have Documents approved medical 100% tax-freeEmployer Matched ContributionUniversity of Floridaconsider roth 401(k)do you need life insuranceno private loanadvice for college graduatesno splurge new carTelepicturesPBS Specialreferrals Changing Livesfile taxes quickly2015 financial roadmapLegal Guardianfile asapLTC shoppingdoctor no longer in networkproperty taxcomparison shoppingcut monthly cable billthree year car loanget over life insurance phobiawaive home inspection bidlong-term care premiumsvalue moneynot enough life insurance50 over 50public service career student loan repayment NewtownCredit scoredebtrolloverMoney-Savingemotional stakespush yourself to save more for retirementlife insurance name trust as beneficiaryultimate compounding giftMost Influential Celebrities Listspeak new goaldangerous money season2016 adjust estimated taxswitch to roth 401(k)loan no longer than 36monthshousing marketletter to suzeincentives for health care wellness screeningpercentage men widowed 75-84tax refund fraudautomatic paymentpay credit debt ASAPis it necessary?College of Veterinary MedicineNew York Lifeavoid burn outtake actionvalentines dayExhibitionroth irahigh FICO scorecalculate dependents annual income needsPersonal Financecredit unionemergency fund Overspendinglowest cost fund optionpay down car loanbreakdown projected monthly housing costno interestworkaholicyours, mine & ourswomen longer life spanmoney vowsclosing feesloan big picture earn allowanceinterest on student loansHeartmonthly dental insurance premiumcollege studentallowance taskretirement accountsovercome financial fearsidentity fraudAshley Springerreal estate mistakesVeterinary Schoolderailed planface your financial fearsidelined20 year level term universal college accessadd teenstrained relationshipjanuary billsfinancing car Giftjuggle multiple financial goalsUS Tax Codeage appropriate goalssocial security never insolventcostly legal Mass MutualCredit Card Rate Increaseopen enrollment review Financial Gift CliffYoung Adult debt freehealthy aging paid vacationCOLAFinancial Awarenessdon't derail retirement savingslower rateOne Wallet At A Timeaffordable premiumJose RodriguezHigh FICO Score = Better Rateloved ones dependent on incomeRevocable Living TrustLong Term Care shoppingFICO Scoreprotect and provide for minor child Spendingbe kind to yourselfteens and moneydo not pay allowance for good behaviorhigh down paymentreplace permanent life insurance with termpay down student loan debtmoney-aware childgift up to 14,000automatic withdraw to savings insuranceHDHP/HSApremiumsummer job match income compare monthly expensesPhyllis Shelton expert long-term carelower interest rate6 month waiting periodVital DocumentsHDHP'smaintain standard of livingwomen live longerFICO at least 720focus on new truth Student Debt Crisisannual cost of living adjustmentstudentalternative FICO scoreoverspend on dining out740 credit scoreAmy LacyetAARP Social security calculatorsame sex marriage band end Floridapurely financial standpointget health insuranceFinancial Awareness Video FestivalRevocable Trustritual scheduleschool increase retirement savingsbad retirement planningInfluential Celebritybill paying prioritiescommunity collegeEmergency Savingsincreased auto insurance premiummax employee matchrefundloan necessityCory BookerHDHP SelectQuote.comFinancial Power of AttorneyForbeskeep a schedulecredit cardlife insuranceretain separate credit cardsresponsible with moneystudent loan repayment estimatorBankruptcyFinancial AdviceInvest for savings growthborrow each year, capitalization is going to pile up Grace401K


View Blog & News List
People First. Then Money. Then Things.
Connect with me on Facebook Connect with me on YouTube Connect with me on Twitter
© 2017 Suze Orman Media Inc. All rights reserved.
 
 |  Search  |  Sitemap  |  Privacy  |  Terms
Sign Up For E-mail Offers
Open Panel
Close Panel