Federal Student Loan Repayment: What Borrowers Should Know

Sometimes, after tuition and expenses and fees are paid, you'll find leftover loan money. That's enticing when spring break looms, but is that really something you want to pay for years down the road? Here are some tips to keep control of student loans and payments.

Calculate potential payments each semester.

It’s easy to calculate what your payments could be post-graduation. Before borrowing, use the Repayment Estimator on the federal student aid website. After borrowing, log in to that same site and the calculation will be done for you. Repeat this exercise each semester and you'll have a running tally. When possible, make an appointment with student money management services, the financial aid office, or a credit union counselor to see how your tally will work into your post-graduation budget.

Don’t borrow "limitless" because of income-driven repayment options.

There may be repayment options based on income, where a lower income post graduation equals a lower payment, but never look at student loans as a source of bottomless money. To manage your expectations, consider the payments on the lengthier plans – not based on income as the amount you’ll have to pay. Your income may vary over the course of repayment and you may not always qualify for a lower payment. If the income-driven plans are available to you, it will be a nice surprise.

If you want forgiveness, apply.

Good news: if, post-graduation, you work ten years for a public service employer and have ten years of on-time payments, you could have the remainder of your federal student loans forgiven. You do, however, have to apply, and forgiveness isn’t guaranteed until you do. Don’t count on this plan when determining how much to borrow.

Don’t pay interest during college.

Old thinking was pay the interest accruing on your student loans while you’re in college. Big mistake, and for several reasons. First, you could build an emergency fund with that money and borrow less in future semesters. Second, through both income-driven plans and Public Service Loan Forgiveness, there’s a possibility that part of your loans will be forgiven. Finally, if you decide to go to graduate school, loan rates are higher on your master’s or professional degree. It would be better to use those saved undergrad funds to reduce graduate school borrowing. Since you’re going to school for at least four years, always remember that each semester’s borrowing should be part of your overall college financing strategy.