Fresh off Graduation, students can start planning student loan repayment

May 28, 2013

Many college graduates across Central New York facing the reality of finding a job are also preparing to start making payments on student loans. 

Cornell University's Sunday graduation among the last of local colleges.
Cornell University's Sunday graduation among the last of local colleges.
Credit cornell.edu

Those with federal student loans have a six-month grace period, and financial aid experts are urging grads to use it wisely.  Jennifer Dwire with New York’s Higher Education Services Corporation says it’s best to pretend you have the loan payment now…


“Make the budget now and start living it over the next six months, so that when that student loan starts it’s not a shock to the budget," Dwire said.  "And one of the great things they can do is if they want to  set up an emergency fund, they can make that payment for the next few months, get a little savings socked away and get ready, because once that student loan payment starts, it’s going to continue until the loans are paid off.” 


That is unless the college grad gets a deferment to continue with graduate-level courses or a forbearance due to illness or unemployment.  But most will start making payments in November under a standard, graduated, or income-based plan. 


REPAYMENT DETAILS



  • Standard Repayment:  A fixed payment ewach month, minimum $50, paying off loans over 10 years.  This method costs the least in interest in the long run.

  • Graduated repayment: Payments increase over time.  Initial payments have to cover interest.  Loan still has to be paid in 10 years.

  • Extended Repayment: Borrowers who owe $30,000 or more can pay fixed or graduated payments over 25 years.  This plan will cost more in interest over the term.

  • Income-based, 'Pay as you Earn':  Can be 10, 20 or 25 years.  Payments based on current income. 

Dwire says the “pay as you earn” plans are the most under-utilized, but might make the most sense depending on the circumstances…


“If you’re coming out of college at an entry level position and you know you’re going to make more over time, but right now the income is very lean compared to the cost of living, there are several factors that come into play, and some of them are, where are you living, your family size.”


Dwire says others might be able to pay more toward their loans to save on interest.  She says this can be done without penalty, but it’s important to specify with the loan servicer in writing to apply the extra payment toward the principal of the loan.  More information including a budget builder is at hesc.ny.gov.