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When Do You Have to Start Paying Back Student Loans?

For many people approaching graduation, student loans loom large. You probably have a lot of questions now that the true prospect of paying them back is upon you. Namely…this one…“When do I need to start paying my student loans back?”

Never fear, we are here to help you navigate the gap between the end of school, and your next chapter.

This post is written by our staff writer,  Lindsey Smith.

What Is The Average Student Loan Debt?

For the vast majority of students, college loans are a fact of life. If you currently have a student loan, take comfort in the fact that you are in the majority.

How soon do you need to start paying on student loansYou will likely participate in a meeting called an Exit Counseling Session. This is where you’ll need to read about your loan and answer questions, usually about repayment terms. This will help get clear on what’s expected of you now that you’re moving on from school.

Now let’s clarify what the student loans are that we are referring to. For most, student loans are one part of an overarching financial package that will include other things like scholarships, grants, merit-based awards and work-study programs. Student loans are usually one piece of how we are financing our education, and hopefully not the biggest one.

Related: 14 Steps to Get a Serious Head Start in Life

What Kind of Student Loan Do You Have?

When you will need to start paying back your student loans depends on what type of loan you have.

There are two main types of student loans that you can take out:

  • private student loans, and
  • federal student loans.

Private Student Loans

Private loans are any loans given by a lender other than the government.

These can include:

  • banks,
  • credit unions,
  • businesses, and
  • the school you’re attending.

The terms of the loan are set by the lender themselves, and there can be lots of variation between different loan providers.

Private loans can have either variable or fixed interest rates, so your interest rate can be dependent on your, your parents’, or any other co-signers’ credit score. This also determines what kind of interest rate you will have over the long term.

  • If you go with a fixed rate, the rate will not change over the course of the loan. Whatever rate you started with is the rate you’ll finish with.
  • If you choose a variable rate, it can change over the course of your loan. You could start your loan with a 3% rate and be paying 13% a few years later. 

They usually have a set repayment term, anywhere from 5-20 years. Private loans are not eligible for student loan forgiveness programs, and are also not eligible for any government-backed repayment programs that are designed to lower your monthly costs. They also accrue interest while you’re in school, and some even require payment while you’re still in school.

A private student loan can also be refinanced later. So you could try to get a lower interest rate, depending on your credit score, salary, and other factors. 

Federal Student Loans

Just like their name says, these are loans that are funded by the federal government.

Within the umbrella of federal student loans, there are three types

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans for Parents

If a loan is subsidized, it means the government pays the interest that accrues on your loans while you are in school or during a deferment.

how to pay off student loans in two yearsWhen the loan is unsubsidized the interest accrues even while you’re in school, and you will eventually have to repay it all.

PLUS loans are taken out by your parents and also repaid by your parents, but are taken out for you.

All federal loans have a fixed interest rate. As of right now, that rate is 3.73%, and won’t change over the course of your repayment.

Something important to note when you start paying back your student loans, federal loans have no prepayment fee. You can begin to pay off your loans as early as you want, even while you’re still in school. 

Related: What is the Snowball Debt Plan? (FREE Debt Snowball Excel Download)

When Do You Have to Start Paying Back Student Loans?

The answer depends on whether you are talking about a private student loan or a federal student loan.

Private Student Loans

Many, if not most private student loans come with a grace period where your payments are deferred until 6 months after you graduate.

They will continue to accrue interest during this six month period, as well as while you’re in school. If you can, it’s a smart idea to make interest-only payments while you’re still in school, so the loan isn’t massive by the time you graduate.

Federal Student Loans

Federal student loans are set up to begin repayment six months after you graduate, or if you drop below half-time enrollment. Like private student loans, this gives you some time to get your first professional job and get financially settled before beginning your repayment plan.

If your federal student loan is subsidized, you don’t need to worry about accruing any interest before repayment begins. If you have an unsubsidized loan, it will function like a private loan in which interest is accruing, even while in school. This would be another scenario where making interest-only payments while in school if possible is a smart idea.

paying back student loansRepaying Your Student Loans

Once you’re ready to move on to repayment, you’ll want to consider all the options available to you. Overall, everyone will be getting into a consistent payment plan with their loans, hopefully paying more than the minimum to chip away at the principle amount as well as the interest, all while balancing other financial goals and responsibilities.

Repaying your student loans is definitely a big undertaking, fortunately there are lots of options for you depending on your situation. 

Private Student Loans

As we discussed, private loans accrue interest as soon as they are taken out. If you’re able to repay them while you’re still in school, you could potentially save thousands of dollars in the long run. 

Once you graduate, depending on the lender’s terms, you’ll begin your monthly payments.

The amount you pay each month is based on a few different factors:

  • interest rate,
  • accrued interest,
  • principle balance,
  • and the terms you agreed to for repayment.

Some private lenders have options to help in the event of financial distress or difficulty. Some will defer your loan if you’re attending graduate school or have an internship, and some will even offer forbearance if you can’t afford to make your payments. The interest will continue to accrue though, so these decisions should be made with the future loan amount in mind.

As we already discussed, private loans offer you the option to refinance, which is another potentially helpful tool when thinking about repayment. If you have a good credit score, you could potentially change the interest and terms of your repayment.

Our Recent Affiliate Partner to Help You! — SoFi: Student Loan Refinancing

creating a spending planFederal Student Loans

Federal student loans also have different options for repayment. The payments don’t start until 6 months after you graduate, or if you’re below half-time enrollment. And a great feature of federal loans is that you can change your repayment plan at any time without penalty. So if your circumstances change, you can adjust your student loan repayment to reflect what’s possible for you.

Standard Repayment Plan

A standard repayment plan is a fixed amount that guarantees your loan is paid off in a specific amount of time. It’s your loan plus interest over the term of the loan, divided into equal monthly payments.

Graduated Repayment Plan

With a graduated repayment plan your monthly payments start off low, and gradually get higher and higher over a 10 year period. This is intended to take advantage of higher earning potential.

Extended Repayment Plan

This type of plan simply extends the amount of time you have to pay back the loan. Of course, the longer the term you agree to the lower the payments will be, but the more you’ll end up paying in the long term because you have a longer period of time for the interest to build.

Income-Based Repayment Plan

With an income-based repayment plan the amount you’re paying is based on your income. This sometimes works like a graduated payment plan, without assuming your income will automatically rise. This is also the favored type of plan for people seeking public service loan forgiveness.

Public Service Loan Forgiveness

This is a special program where if you work full time for a qualifying employer, your direct loan balance will be forgiven after you’ve made 120 qualifying monthly payments.

These are government jobs, as a qualifying employer is a U.S. Federal, State, Local, or Tribal government or not-for-profit organization. And you must work full time.

Everyone who qualifies can and should apply for this program, however actually getting it is quite difficult. According to Forbes, only 206 applicants out of 49,669 applications in 2019 actually got their loans forgiven.

Related: Average College Debt: How It Affects You and How to Pay It Off

When Do You Have to Start Paying Back Student Loans? …Final Thoughts

If you find yourself needing to take out student loans, whether private or federal, for college, that’s completely normal. It is a reality for the majority of us, and something many decide is in our best interest to do in the long term.

BUT keep in mind, that perception that we all have in college, that this is just pretend money and some distant future self will have to deal with it, is false.

Life comes at you much faster than you anticipate, and very soon you’ll be making the payments you agreed to. So always make sure you understand the loan agreement and confirm that it will work for you. Know and understand all the different types of loans and options for repayment, and when you’ll need to start repaying them.

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My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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