How to Repay Your Student Loan On-Time, Every Time

Low angle view of happy group of six young cheerful graduates in black gowns, throwing up their head wear in the air and celebrating.

Congratulations on your college degree! You worked hard and you deserve it. But guess what? College wasn’t free. Even if you worked your way through your 529 savings, won a few small scholarships and participated in a work-study program, you might have had to take out a loan to bridge the gap. National student debt has soared to $1.4 Trillion. The total amount of money borrowed in mortgages is the only debt that is higher than this.  If you turned the tassel and then had to turn your attention to how much you owe in student loans, this is the guide to help you repay your student loan on-time, every time.

Handy Tips To Repay Your Student Loan On-Time

One tool for building good credit is to repay your student loan on time. The first thing you should do is set up auto payments with your bank. Pay off as much as you can every month. For borrowers who have never financed a car or had a credit card, the student loan is the first debt that will have an impact on credit history. It’s important to make the payments on time because the student loan late payments negatively impact your credit score. Your credit score is the three-digit number that reflects your creditworthiness. It’s the tool that lenders use to determine if you are a good borrowing risk and how high your interest rate will be to borrow.

Questions below will be your guide to make a good plan on how to repay your student loan on time.

When Do I Start Repaying Student Loan Debt?

If you financed your education with a federal student loan you have a grace period of six months after you graduate, drop below half-time enrollment or leave school, to begin paying back the loan. Interest accrues during the grace period and is added to the full amount of the loan. You can make those interest payments if you’d like with no penalty to you.

If your higher education loan is from a private lender, like a bank, you may or may not have a grace period. That will be in the terms of the original loan. The idea of the grace period is to give you a chance to get a job and some financial footing before payments begin. But just because you have a grace period doesn’t mean you have to use it. You can begin chipping away at what you owe if you start to repay your student loans soon as you can.

How Do I Know How Much I Have to Pay?

If you have a federal student loan the government will put it in the hands of a servicer and the servicer will send you a statement detailing what you owe, the amount of each monthly payment and when the payments are due. A private lender will generally do the same thing in a monthly statement that either comes electronically or through the mail.

What are My Repayment Plan Options?

The federal government offers a full menu of options for paying back their student loans. Student loan repayment plans generally fall into two categories – standard repayment plans or income-based repayment plans. The default status is a standard repayment plan, but you can apply to change that at any time during the course of the loan.

Standard Repayment Plans

There are three variations on a standard repayment plan

  • A standard repayment plan is set up for a fixed length of time and the monthly payment due is always the same.
  • A graduated repayment plan has monthly payments that balloon through the life of the loan. This type of loan assumes your income will rise over the years and you can afford a larger payment down the road than you can now.
  • An extended repayment plan stretches the loan out over many years. This lowers the monthly payment that is due but the longer terms and the extra interest that will accrue means that in the end, you have spent significantly more to repay your student loan.

Income-based Repayment Plans

Income-based repayment plans are based on calculations that look at your disposable income and what you can be expected to afford as you repay your student loan. They can be set up for varying lengths of time. These plans tend to be good for borrowers whose incomes are low or their debt-to-income ratio is high.

Why is it Important to Pay On-time?

Fulfilling the terms of the loan is good for your credit score. So is making timely payments over a lengthy amount of time. Both of those things build a credit history. A student loan is installment debt, meaning something that you pay for a fixed amount of time. That’s different from revolving debt, like credit cards, that are open-ended. The three top credit score reporting agencies, Experian, TransUnion, and Equifax, are looking for a mix of installment and revolving debt as a way to build a higher credit score.

Make a Budget

You have to plan to make that student loan payment each month. That’s where your budget comes in handy. A budget allows you to take control of your finances because you can clearly see what is coming in and what is going out. A budget eliminates haphazard payments to obligations that may or may not be made on time. How do you begin to budget?

Your budget can be a simple spreadsheet with rows and columns that allow you to add, subtract and plan. A more visual option is a budgeting app like Mint that allows you to set up a budget and then add bills to a dashboard so that you receive reminders when things are due. Another budgeting app is YNAB, or You Need a Budget, which works on zero-based budgeting, which means it takes into account only the money you absolutely have at that moment.

In its simplest form, a budget provides a snapshot of income versus expenses. So you begin the budgeting process with an honest assessment of income. Then you list your obligations. These include the cost of housing, food, utilities, transportation, insurance, clothing, and personal items. If you need to repay your student loan that goes right here in the obligation column. You should budget to set at least a little money aside for savings and there has to be some space for entertainment and eating out so you don’t feel completely deprived by your monetary obligations.

If you are following your budget you’ll have the money to repay your student loan on-time every month.

Learn How to Decrease Your Expenses

An important part of budgeting is also to track spending. If you haven’t ever laid your budget out in front of you, you might be surprised by what you see. There may be some glaring places to cut expenses. There might be subscriptions to services you no longer need or want. You might find expenses to try and renegotiate like the cost of cable television or your wireless provider. You may decide it’s time to learn how to cook and not pick up so much take-out during the week.

Your list of monthly obligations may include multiple student loans with different lenders and lengths of obligation and payments due at different times of the month. In that situation, you might want to consider consolidating your student loans.

Why Consolidate My Student Loans?

Consolidating student loan debt is one way to organize what’s due and get the monthly obligation paid on time. Consolidating all the debt into one loan gives you a really accurate picture of how much you owe how long it will be until you repay your student loan.

If you have federal student loan debt to consolidate, begin at studentaid.gov, the same place you always filled out your FAFSA, or Free Application for Federal Student Aid each year to determine your aid eligibility. The federal government allows you to consolidate your federal loans into one loan at no fee. Consolidating like this doesn’t change your interest rate, though. It will be based on the interest rates from your original loans.

You can also consolidate loans through a private lender, like a bank. You could choose to consolidate only your existing private loans or combine your private loans and federal loans into one payment. Consolidating like this allows you to compare interest rates, customize the length of the loan, customize the payments on the loan and even select the day of the month when the payment will be due. One word of caution about taking federal loans into a private consolidation program. Once the federal loans are out of the government’s hands you lose access to federal repayment and forgiveness programs.

Should I Refinance My Student Loans?

That’s a good starting question. You can only refinance a single student loan or group of student loans that are already in the hands of a private lender. You can refinance to take advantage of a lower interest rate or to change the terms so that the loan ends either sooner or later than the current payoff date.

If you turn to a private lender to repay your student loan by refinancing, that lender will look into your credit score, credit history, employment status and how well you have already done making payments on your student loan debt. In some cases, a private lender may require a co-signer to guarantee the loan. If you’re looking for a lendre, Loanry has some recommendations for you.

Should I Take Out a New Loan to Pay Off Student Loan?

Going to the bank and taking out a personal loan is one strategy to help you repay your student loan. This is probably only a choice for borrowers with very high credit scores. Otherwise, the interest rate is likely to be higher than the original student loan.

Should I Transfer My Student Loan Debt to a Credit Card?

This is generally not a good idea because the interest rates on credit card balances are usually higher than the rates on loan.

Can Any of My Student Loan Debt Be Forgiven?

Mostly, the federal government is looking for complete and on-time repayment of student loan debt. There is one program – PSLF, or Public Service Loan Forgiveness, that is for employees of the government or employees of non-profits. The lender might forgive the student loan debt after the borrower makes $120 monthly, qualifying payments while working full-time.

Some teachers who spend five complete and consecutive years working in low-income schools may be eligible to have student loan debt discharged.

If your school closes while you are attending or soon after you graduate your debt might be discharged. In the case of a permanent disability or death, they can also remove it.

Can I Pay More Than What’s Due Each Month?

An excellent strategy to help you repay your student loan is to make extra payments whenever possible. Reducing the total amount owed one payment a time can move you toward paying off the loan earlier than the terms.  There is no monetary penalty for paying more than the minimum on your student loan.

Another sound strategy is to make more than one payment a month on student loan debt. Even if you take the regular monthly payment and cut it in half and submit a payment every two weeks you reduce the amount of the loan quicker.

Any time you receive a little windfall of cash, maybe a bonus at work or an income tax refund, consider using it to make an extra payment on your student loan to accelerate the payoff process.

How Will I Remember When the Student Loan Payment is Due?

On-time payments go a long way toward building your credit and finishing your student loan. So it is very important that the lender receives the payments on or before the due date.

Consider some kind of system that will help you remember it’s time to make a payment. Maybe it’s an entry in your digital calendar on the day you should send the payment. Maybe it’s a reminder on your phone. Or maybe you use an app that sends you notifications to remember to repay your student loan.

Another strategy is to sign up to have the loan payment automatically drafted from your bank account when it is due. Sometimes the lender will offer a monetary incentive if you sign up for automatic drafts.

What if I Can’t Make My Payment?

The very first day after you miss a student loan payment the lending institution considers your account past due or delinquent. If you don’t get completely caught up with payments and interest by 90 days, your loan servicer will report your delinquency to credit reporting agencies. If you go further than that, the servicer can say that you defaulted on the loan and will demand complete payment of the entire amount of the loan and interest immediately.

Defaulting on a student loan negatively impacts your credit score and your future ability to borrow money at a reasonable interest rate. Your college or university may refuse to send copies of your transcript if you have defaulted on your loan.

If you are having difficulty making payments contact the loan servicer immediately to try and figure out a way to back on track with a loan repayment schedule.

Conclusion

If you graduate from college with student loan debt it is important to commit to paying the loan in full with on-time payments. Gather up information about your loan or loans and calculate the complete amount you owe, the amount of each payment, the due date of each payment and when you will pay off the debt if you follow the current terms. If the loans are federally-backed student aid you can research repayment options that can change the length of the loans and impact monthly payments. If you have more than one loan you can consider consolidating that debt into a single loan so that there is only one payment each month to remember. You can investigate what kind of interest rate private lenders would give you if you refinanced, and see if you can save money over the length of the student loan that way.

No matter what the payment or payments add up to or when they are due, it is important to commit to paying your educational debt. Your monthly budget should make it a priority to repay your student loan. Set reminders, mark a calendar or automate your monthly payments so that they get to the lender on time, every time. Faithfully paying down your student loan debt will not only build your credit for future purchases, when you get to the very last payment you will feel like you really accomplished something in your personal, financial life.