Student Loan Timeline FAQ: What Should You Know About Payments?
Whether you're ready to graduate this spring or you've been in the workforce for a few years, you may be wondering what your student loan timeline looks like. When will you be able to stop worrying about your loans and have them paid off?
Unfortunately, the answer isn't always as straightforward as you might like and it depends on a couple of factors. Here are some common student loan FAQs.
When Do I Start Paying Student Loans?
Depending on the lender, there may be a grace period — a period of time when you don't have to make payments after graduation — to help you manage the post-graduation transition. Stafford loans have a six-month grace period while Perkins loans offer up to nine months. Don't get too comfortable, though. Nine months is the upper limit and other student loans may require immediate payments with no delay.
If you choose to consolidate your loans, this will end any current grace periods. Learn more about the different rules at The National Consumer Law Center®'s Student Loan Borrower Assistance Project.
How Long Will I Have to Make Payments?
Federal loans are often designed to take 10 years to pay off, while private loans can vary considerably. Every student loan will have a minimum payment that you make each month, which can vary depending on what kind of repayment plan you're signed up for. There are three different ways to look at your timeline.
The first option includes calculating your monthly payments and sticking with them. Your loan term will dictate any required monthly payments; use a loan calculator to chart these payments. Just make sure to have the loan amount, loan terms in months, and interest rate per year handy. Once you plug these numbers in, the calculator will show you your expected monthly payment and total interest paid. Remember, if you have multiple student loans, enter their terms in separately to see what each loan looks like.
For example, if you have a loan of $10,000 with a 10-year term and a 6 percent annual interest rate, you would need to make payments of $111.02 each month to end the 10-year loan on that last 120th month. You can also compare loans to see which has the highest associated costs.
Your second option is paying off your student loan based on your salary. Here, you choose what percentage of your salary you want to put toward your loan. It's an effective calculation if you want to pay beyond the monthly amount and end your loan as soon as possible.
As a third option, if you have federal student loans and your payments are high compared to your income, the federal government offers several income-driven repayment plans under which your payment amount is a percentage of your discretionary income. Learn more about income-driven repayment options, including payment and loan terms, at Federal Student Aid.
Should I Still Make Extra Payments If I Can't Make Them Every Month?
The more you pay off of the principal amount, the less interest the loan will accrue. Therefore, you will save money and end the loan sooner if you can make any extra payments. Remember that 10-year loan above? Just an extra $100 per month would pay that loan off in about 5 to 6 years.
However, this doesn't mean that you need to devote all of your extra revenue to student loans. Here are three priorities to consider when apportioning spare income:
- Set up an Emergency Fund: Everyone should have one, and it should be enough to cover your expenses for a few months.
- Pay off Debts with Higher Rates: You should always prioritize paying off debt on credit cards, personal loans, and anything else with a high interest rate.
- Retirement Savings: Post-graduation, saving for retirement in your 20s is a good idea. Consider putting money into retirement savings via a work investment program or your own IRA.
Don't feel comfortable making extra payments right now? That's okay — you can make extra payments in the future when you feel a little more financially secure.