Student loans: Five ways to get on top of your payments in 2016
If you graduated in 2015 and have student loans, you probably started making payments on them at the end of last year. Rather than freak out about this new obligation, here are five things you can do to get on top of your loan payments in 2016.
A Stanford University student walks in front of Hoover Tower on the Stanford University campus in Palo Alto, Calif.
Paul Sakuma/AP/File
When Brenda Manea received a letter stating that her first student loan payment was due in a month, she thought it was a mistake.
鈥淚 didn鈥檛 actually know that I took a loan out,鈥� says Manea, who graduated from San Diego State University in May 2015. She鈥檇 paid for college largely through government grants, and had overlooked a $4,000 loan she鈥檇 taken out her freshman year.
But luckily, her monthly payments were relatively small 鈥斅燼round $50 鈥斅燼nd she鈥檇 started her first full-time job at a public relations firm about a week after graduating. So despite the surprise, Manea could manage the monthly payments.
Although聽the first student loan bill certainly doesn鈥檛 come as a surprise to every recent graduate, the reality of entering repayment can be jarring after a six-month grace period.
If you graduated in 2015 and have student loans, you probably started making payments on them聽at the end of last year. Rather than freak out about this new obligation, here are five things you can do to get on top of your loan payments in 2016.
1. Know what you owe.
It may sound obvious, but you need to know what type of loans you have: federal, private or a combination of both. The types of loans you have determine your options for repaying, consolidating and refinancing your loans. We鈥檒l discuss each of these in more detail below.
You can find a list of your federal loans by logging into the聽. You may also have private student loans from lenders such as聽Sallie Mae, Discover and Wells Fargo.
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2. Make an online account with your loan servicer.
Your servicer is the company in charge of collecting your federal loan payments, managing your balance and helping you choose the best repayment plan. If you haven鈥檛 already, find out who聽聽is on the Federal Student Aid website, and then create an online account with that company. There are several federal loan servicers, but four main ones:聽,听,听补苍诲听.
3. Automate your payments.
Consider signing up for automatic payments, which will allow your servicer to deduct monthly payments directly from your bank account. Many servicers will reduce the interest rate on your federal Direct Loans by 0.25% when you sign up for automatic debit. Plus, automating your minimum monthly payment will help prevent you from accidentally missing a payment.
鈥淚t鈥檚 a great way to have peace of mind that you鈥檒l always be on time,鈥� says Patricia Nash Christel, a spokeswoman for Navient.
If you set up automatic debit, make sure you always have enough money in your account to cover the minimum monthly payment, or you could be hit with an overdraft fee.
4. Choose a repayment plan.
Your federal student loan payments are automatically set on a standard repayment plan, which means you鈥檒l make equal monthly payments for 10 years. But there are six other聽聽you can select through your loan servicer to lower your payments. The standard, graduated and extended plans are open to everyone, but others 鈥斅爄ncluding the newest plan,聽鈥� are based on your income and family size. You can see which repayment plans you鈥檙e eligible for by entering your loan information on the Department of Education鈥檚聽听迟辞辞濒.
5. Keep consolidation and refinancing in mind.
You may be able to simplify your payments, access certain repayment plans and potentially save on interest by consolidating or refinancing your loans. They鈥檙e often used synonymously, but consolidation and refinancing are two distinct options.
聽means combining multiple federal loans into one. It鈥檚 a good option if you want to access a repayment plan that you can鈥檛 get with your current loan. For example, most income-driven repayment plans require that you consolidate to a Direct Loan to be eligible. So if you have another federal loan, such as a Perkins or Stafford loan, it makes sense to consolidate in that case.
Refinancing refers to taking out a new private loan to pay off your outstanding private or federal student loans. The goal of refinancing is to get a lower interest rate. To find out how much you could save, check out this聽through our partnership with student loan refinancing marketplace Credible.
However, there are reasons to wait before refinancing. For one thing, refinancing your federal loans will turn them into private loans, which will make you ineligible for federal loan considerations including income-driven repayment plans and forgiveness, deferment and forbearance programs. Second, your credit score will likely be higher once you鈥檝e spent a few years making on-time payments, says Betsy Mayotte, director of regulatory compliance at American Student Assistance, a nonprofit focused on helping students pay for college. A higher credit score could mean lower interest rates, so refinancing might be more beneficial if you wait a few years.
The聽bottom line
Making your first few student loan payments can be overwhelming, but the more you understand your loans, the better. To learn more about your repayment options and what to do if you can鈥檛 make payments, check out聽.
Teddy Nykiel is a staff writer at聽, a personal finance website. Email:聽teddy@nerdwallet.com. Twitter:聽.