Sense & Centsibility Blog

Top Five Tips for Repaying Student Loans

You cannot pick up a paper today or go to an online news-source without reading about the tragic story of a college graduate’s life that has been ruined by student loans. We are only bound to hear more and more about this topic as college costs continue to rise; federal, state, and local governments pull back on subsidies for higher education; and the middle class continues to be squeezed. I previously wrote about how to avoid a “house-worth” of student loan debt. This time, I will focus on what to do if you already owe it.

Know your loans

One of the reasons student loans are so confusing is there are many different types of loans. It used to be that you could get both a federal loan and a private loan from most banks, which only added to the confusion. Loans used to be made through the Federal Family Education Loan (FFEL) program which included Subsidized Stafford Loans, Unsubsidized Stafford Loans, Federal PLUS Loans, and Federal Consolidation Loans. Most of these loans were originated through banks with government backing and insurance. Now all Federal Loans are distributed under the William D. Ford Direct Loan Program and are originated with the Federal Government, cutting the banks out as middle-men. There are still four types of loans under this program: Direct Subsidized, Direct Unsubsidized, Direct PLUS, and Direct Consolidated. For the students with most need there are Federal Perkins Loans as well.

student loan repayment

How can you tell what type of loans you have? If you have an undergraduate degree and you only have Federal Loans that were taken out after 2009 then your loans will be Direct Loans and/or Perkins Loans. If your loans are all Federal Loans and were taken out earlier than 2009 you may have a mixture of FFEL loans and Direct Loans. If you are a graduate student you may also have Federal PLUS loans. And many of you have likely also taken out private loans and/or SELF Loans. To add to the confusion, many students who are in repayment are paying a loan servicer as opposed to the loan originator. A loan servicer (like, say, Sallie Mae) could be managing both your federal and private loans. So if you didn’t keep good records in college or after, it is imperative to figure out what types of loans you have. Go to the National Student Loan Data System (NSLDS) and get a financial aid review. All of your Federal Student Loans will be listed there. If a loan is not listed, it is either a private loan or state funded SELF-Loan.

Know your grace period(s)

Different Loans have different grace periods. A grace period is how long you can wait after leaving school (either through graduation or dropping below half-time), before you have to make your first payment. If you are a recent graduate you may still be in yours. The FFEL and Federal Direct Loans have six month grace periods. Perkins Loans have a nine month grace period. For Federal PLUS loans it depends on when they were issued and who borrowed them.

What about private and SELF Loans? The grace periods for private student loans can vary so consult your paperwork or contact your lender to find out. SELF Loans do not have a grace period, so to speak: repayment starts right away, but only interest payments are required at first. Contact your state board of higher education for more information about SELF Loans.

Know your repayment options

student loan calculator

For borrowers with federal student loans there are several repayment options. When your federal loan comes due it will automatically be based on a standard 10-year repayment plan. There are many other options if you can’t afford to make this payment right away, and you can change plans down the road when it may be more affordable. Some of these options are:

Graduated Payment Plan: may work best for borrowers who expect increases in earnings over time. It has a 10 year repayment term and involves monthly payments that increase every two years.

Extended Repayment Plan: may be a good fit if your total amount borrowed exceeds $30,000. You can choose a fixed or graduated payment not to exceed 25 years. Income Contingent Repayment: is an income based option for Direct Loan borrowers only. Payments do not need to cover monthly interest and will go up as income increases. As long as you make all your payments for 25 years the remaining balance will be forgiven.

Income Based Repayment Plan: is an income based repayment plan for FFEL and Direct Loan borrowers. Like the ICR above, your payment is based on your income and family size and after 25 years of payments (20 years for loans taken out after July of 2014), the remainder may be cancelled.

It is important to note that the portion of your loans that are forgiven under either the Income Contingent Repayment Plan or the Income Based Repayment Plan may be subject to taxes. To learn more about all of these options visit

Perkins loans have different repayment options than the Direct Loan or FFEL Loan repayment options. You will need to check with your school or the loan servicer about these options. Private loans may or may not have optional repayment plans which you can find out about by contacting your lender. SELF Loans vary by state and you will need to contact your state’s Higher Education Board.

Know how to stay out of trouble

If you are unable to pay on your federal student loans call your loan servicer right away. You may be eligible for a forbearance or deferment of your payments. A deferment temporarily stops payments if you fall under certain situations like losing a job, going on active military duty, or adopting or having a baby. The government may cover interest on Federal Perkins Loans, Subsidized Direct Loans, and/or Subsidized Federal Stafford Loans, but interest will continue to accrue on other types of loans, increasing the amount of your debt. Forbearance also temporarily stops the payment on your principal; however interest will accrue on all types of loans, increasing the amount of your debt. Learn more about the pros and cons of forbearances and deferments .  Some private lenders may offer a forbearance or deferment plan for a fee. Whether a federal or private loan it is important to contact your lender right away if you think you may not be able to pay.

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Know where to turn if you need help

Sometimes it can be very overwhelming to know which payment option is the best to choose, scary to call your lender servicer if you miss a payment, or you just may not know how big of a payment your budget can handle. Don’t panic! LSS Financial Counselors are available to help you look at how your student loan payment can fit into your budget, create a strategic plan to pay off your loans, and explore other options if you need reduced payments.

If you want free help to guide you through this process, call LSS at 888.577.2227 or START ONLINE COUNSELING now. Don't wait - take action today!

Author Shannon Doyle with LSS specializes in Debt/Budget Counseling and Student Loans.