As you get ready for your next great adventure, the Office of Financial Aid has some advice about managing and repaying your student loans to give you the best start possible.
Most student loans are in deferment while you are enrolled at least half-time (six credits or more), but once you leave DigiPen or drop below half time, repayment begins. Graduation or withdrawal are common reasons for loan repayments to start, but taking time off for health or financial reasons also trigger this process.
For all Federal Direct Loans, there is a six-month grace period after leaving school before you have to start making payments. Many private loans also have a six-month grace period, but not all of them do, so make sure you check with your private lender to confirm when your first payment is due!
Quick tip: Just because you don’t have to make payments for six months doesn’t mean you shouldn’t! The sooner you start repaying your loans, the less overall interest you will pay.
Four Steps to Taking Control of Repayment
Step 1: Know Who Your Lender(s) and Servicer(s) Are
Federal Direct Loans are serviced by outside companies called loan servicers. You can look up which servicer your loan has been assigned to by logging into StudentAid.gov and checking your loan details.
Once you determine who is servicing your federal student loans, go to their website and establish an account. You will use this account to monitor your loan balance, make payments, and do everything else related to your federal student loans.
Private lenders almost always service their own loans, so you may have already established an account with your private lender when you applied for the loan. If not, make sure to establish one now.
You must continually update your loan servicers with your current contact information to ensure you receive information and updates on your loans in a timely manner and to prevent sensitive information from being sent to an incorrect address, email, or phone number.
Step 2: Determine How Much You Owe
This step is fairly straightforward: After you establish your online accounts, check your loan balances. Federal loan balances can also be viewed on StudentAid.gov. You should confirm that the balance matches the information from your federal loan servicer. Discrepancies are rare, but they do occur, so make sure to check with your loan servicer and contact them if there is a difference you do not understand.
Step 3: Determine Your Repayment Plan
For private loans, the repayment plan is set at the time you borrow the funds — usually 10 to 20 years. For federal loans, there are several options available depending on the total amount borrowed and your ability to repay the loans. The different plans are briefly described below, but you should review the full details at StudentAid.gov before selecting one.
120 fixed, monthly payments (10 years). You’ll pay the least amount of interest on this plan.
120 monthly payments (10 years). Payments start lower than the standard plan, but increase every two years and will be higher than the Standard Plan amount in the second half of the loan period. You will pay more interest than you would on the Standard Repayment plan.
300 fixed, monthly payments over 25 years. Your monthly payment will be lower than on the Standard Repayment plan, but you will pay significantly more interest over the life of the loan.
Income-Contingent Repayment (ICR)
Your monthly payment will be 20% of your discretionary income, but will never exceed what a standard monthly payment would be on a 10-year fixed-payment plan. Any balance remaining after 25 years may qualify for forgiveness. You do not have to meet income criteria to select this plan. You may pay more in interest than on the Standard Repayment Plan, and any forgiven balance may be taxed as income.
Income-Based Repayment (IBR)
Your monthly payment will be 10-15% of your discretionary income, but will never exceed what the monthly payment would have been on the Standard Repayment plan. Any balance remaining after 20-25 years may qualify for forgiveness. You must meet income criteria to qualify for this plan. You may pay more in interest than the Standard Repayment plan, and any forgiven balance may be taxed as income.
Pay As You Earn (PAYE)
Your monthly payment will be 10% of your discretionary income each month, but will never exceed what the monthly payment would have been on the Standard Repayment plan. Any balance remaining after 20 years may qualify for forgiveness. You must be a new borrower and meet income criteria to qualify for this plan. You may pay more in interest than the Standard Repayment plan, and any forgiven balance may be taxed as income.
Revised Pay As You Earn (REPAYE)
Your monthly payment will be 10% of your discretionary income each month, and may exceed what the monthly payment would have been on the Standard Repayment plan. Any balance remaining after 25 years may be forgiven. You do not have to meet income criteria to select this plan. You may pay more in interest than the Standard Repayment plan, and any forgiven balance may be taxed as income.
If you’re not sure which plan is best for your circumstances, contact your loan servicer or use the Department of Education’s Loan Simulator to compare plans.
Step 4: Consider Loan Consolidation
If you have multiple federal student loans serviced by multiple servicers, it may make sense to consolidate them into a Direct Consolidation Loan. This does simplify repayment for some students if they would be making multiple monthly payments to different loan servicers. Loan consolidation does have tradeoffs, so it is important for students to explore their specific loan options with their servicer prior to making the decision to consolidate.
Benefits of Consolidation
Drawbacks of Consolidation
Private student loans are not eligible for federal consolidation, but you may be able to refinance them by securing a debt consolidation loan through a private lender. With a good credit history and high credit score, you may be able to lower your interest rate significantly. You can include your federal student loans with a private debt consolidation loan to put all of your debt in one place. This means you will only have one monthly payment, but it may come at the cost of the fixed interest rate and better repayment benefits (deferment, forbearance, variety of repayment plans) on federal student loans. Carefully consider whether a single monthly payment is worth paying more in interest over the life of the loan.
Resources for Student Loan Borrowers
If you need additional support regarding your Direct Loans, the state of Washington and the Department of Education provide resources for student loan borrowers.
WA Student Loan Advocate - Addresses student borrower complaints, provides information about loan repayment, and educates the public about the rights and responsibilities of student loan borrowers. Contact through email at email@example.com or by phone at (833) 881-0397.
Federal Student Aid Ombudsman Group - A neutral, informal, and confidential resource to help resolve disputes about your federal student aid.
Two Pieces of Advice
|Repayment Plan||Monthly Payment Amount||Total Number of Payments||Total Interest Paid|
|Extended Repayment||$263 (Minimum)||300||$33,900|
|Standard Repayment||$477 (Minimum)||120||$12,240|
|Standard Repayment + $50 extra/month||$527||106||$10,862|
|Standard Repayment + $100 extra/month||$577||95||$9,815|
Paying less each month means making payments for a longer period of time and paying more interest over the life of the loan. Choosing the Standard Repayment plan for federal student loans will always be the fastest way to repay the balance in full, and if you pay even a small amount more each month, it can dramatically reduce both the length of time you’re making payments and the amount of interest you pay.
Private loans do not typically provide multiple options for repayment, but you can make accelerated payments on them as well. Since private student loans tend to have significantly higher interest rates, it’s even more advantageous to pay above the minimum, and as much as you can.
Here’s something to think about: The yearly living expenses for an average undergraduate student are around $20,000. Let’s imagine that you, as a DigiPen alumna or alumnus were making $50,000 per year after graduation. If you were to pay an extra $1,000 a month above the minimum payment, you would still be able to afford the same standard of living of $20,000 per year, but your repayment would look like this:
|Repayment Plan||Monthly Payment Amount||Total Number of Payments||Total Interest Paid|
Now, very few students want to continue to live like a student after graduating, and the example above is extreme, but it is important to realize that if you dedicate as much of your income to repayment as you can, you can save thousands of dollars. You will also get to the point where none of your take-home income has to go to paying off your loans much faster, which frees that money up to do other things.
If you have trouble making payments, seek relief. If you are struggling to make payments on your loans due to financial hardship, unemployment, medical issues, etc., it is very important to work with your servicer to ensure that you do not default on your loans. Defaulting can lead to damage to your credit score, garnishment of wages or tax refunds, and eventually bankruptcy.
The first option would be to explore if another repayment plan might be a better option. You may qualify for an Income-Based Repayment plan, which could allow you to stay on track with your loan payments at a greatly reduced monthly payment amount. In some cases, with Income-Based Repayment plans, your monthly payment could be as low as $0 per month.
If a different repayment plan is not an option, contact your loan servicer to find out if you qualify for a loan deferment or forbearance, which would allow you to temporarily suspend your payments.
Loan deferment does not require borrowers to make any payments, however, no progress will be made toward forgiveness or paying the loans off. While loans are in deferment, interest will likely still be accruing as well. To learn more about loan deferment types and options, visit the Department of Education’s Loan Deferment webpage.