College graduates carrying student loan debt face a repayment process that can be difficult to manage, a fact highlighted by a 2020 research report from The Pew Charitable Trusts. The study showed that while 7 in 10 Americans polled in 2019 thought taking out student loans was reasonable given the benefits of a college degree, 89% were concerned about borrowers’ ability to repay that debt.
Today’s college graduates who borrowed to pay for school seek guidance in addressing the specific challenges they face in paying back their student loans. Some seek help from accredited and independent national nonprofit organizations, which can be useful sources of information.
While graduates’ questions cover a range of topics, the most common concerns fall into one of the following areas.
Figuring Out the Basics
For new college grads, the majority of questions center around the total amount borrowed in student loans, current balances, interest rates, payment due dates and the minimum amount due every month.
Aside from wanting to understand how to find student loan balances, graduates also have questions about how to reach federal student loan servicers that administer accounts or, for private student loans, the lender. Grads who took out federal student loans also seek to understand grace period policies so that they can take advantage of that time to develop an overall financial plan that works with their budget.
Graduates looking to document the details of their student loans can find information through a variety of sources, including the college or university financial aid office, their StudentAid.gov account, their loan servicers or lenders and the U.S. Department of Education’s National Student Loan Data System, or NSLDS.
Repayment Challenges Due to Financial Instability
Another set of concerns is how to manage loan repayment in the face of financial instability. Whether it’s a delay in employment, a job that resulted in lower-than-anticipated compensation or financial challenges due to changing life circumstances, financial instability is a significant barrier to repayment for many graduates fresh out of college.
Some graduates describe issues managing payments immediately upon graduation, particularly private student loans, which usually don’t offer a grace period. Some borrowers run into financial roadblocks as they begin their career. In such cases, student loan counselors can help them look at their entire financial picture and chart a path forward.
These conversations often start with building a simple monthly budget that tracks income and expenses such as housing, transportation, child care and any payments borrowers face from other debt such as credit cards. The focus is on how much the graduate can afford to start paying back. Once the full financial picture is assessed, it becomes clear how much discretionary income can be assigned to student loan payments.
Only after this budgeting exercise can a borrower understand his or her best options. Depending on what a borrower can ascertain using tools such as the Education Department’s online Loan Simulator, options for federal student loans might include temporary payment relief through deferment or forbearance, a graduated repayment plan, an extended repayment plan, student loan consolidation or other alternatives.
Before choosing what action to take, a borrower should seek to understand the pros and cons of each approach given the specifics of his or her overall financial situation.
Eligibility for Repayment Plans Based on Income
New graduates also seek clarity on how to change repayment plans, as well as how each option affects credit scores and credit history. Many graduates have questions about income-driven repayment plans, which are relief options available to qualifying federal student loan borrowers who are struggling to keep up with their payments.
Some recent college graduates have said that they did not know about income-driven plans and need help understanding the criteria. Grads commonly say they need guidance navigating the application and in some cases recertification processes required with plans that reduce or defer payments.
Graduates should understand that nearly every federal student loan is eligible for an income-driven repayment plan, and the ones that aren’t can become eligible if the borrower combines multiple federal student loans under the federal direct consolidation loan program.
College grads planning to get married often seek details of the so-called ” marriage penalty” that can be a factor when calculating repayment amounts under an income-driven repayment plan. Counselors help borrowers understand the implications for these plans depending on how a couple files their taxes.
Various income-driven repayment plans can extend the repayment term for federal student loans from 10 years to 25 years, which means borrowers will pay more in interest over time. It’s important for graduates to assess their full financial picture to see the pros and cons of the different income-driven repayment plans based on their specific situations.
Options to Move Forward After Default
Another concern that college graduates bring to loan counselors is how to understand their options if they default on their student loans. For federal student loans, counselors provide an overview of the primary ways to get out of default, including loan rehabilitation and loan consolidation. Again, the focus is on how each process will affect the borrower based on a complete financial picture of current income, expenses and debt.
Some borrowers also want to know how long it would take to complete loan rehabilitation or how quickly they could apply for loan consolidation.
Student loan counselors highlight the key considerations that apply to each individual, such as timing of payments or how to communicate with debt collection agencies, if needed.
Graduates concerned about private student loan default often ask for guidance on understanding contract terms, since each private student loan comes with different loan agreements. Some banks that provide private student loans offer forbearance to help borrowers catch up on payments and avoid default.
In some cases, borrowers may be able to refinance private student loan debt for a lower monthly payment. As with a federal student loan, when a private student loan is delinquent, the borrower’s credit score takes a hit, making it more difficult to secure a new loan. Financial counselors with expertise in student loans look at a borrower’s individual financial situation to recommend the best approach.
Ways to avoid student loan delinquency, which leads to default, include making payments on time and — if a financial situation is more challenging with federal student loans — applying for deferment or forbearance. Other options include consolidating loans or, for federal student loans, researching income-driven repayment plans.
College graduation is an important milestone. Take the time to set yourself up for success when it comes to managing your student loan debt. From participating in federal student loan exit counseling and keeping communications open with your loan servicers or lenders, to exploring opportunities with employers that offer the benefit of student loan repayment assistance, the more you know, the better the path ahead.
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Common Questions College Graduates Have About Student Loans originally appeared on usnews.com