5 tips for new grads preparing to pay off their student loans

Now comes adulthood: Finding a job, potentially moving to a new city, and striking out on your own.

And for many U.S. graduates, the post-college experience also includes making monthly payments on student loan debt. Here are five things to keep in mind as you prepare to start repaying your student loans.

1. Federal borrowers won’t owe right away

Many graduates with federal loans are typically given a six-month grace period after they graduate during which they are not required to make any payments.

Typically, interest still accrues during this period. That said, the next few months are a little different. Payments and interest accrual on federal loans are on hold through the end of August. That gives new grads at least a few more months with no interest building on their principal. And it’s possible the payment pause will be extended even longer.

You’re allowed to make payments during your grace period (or even while you’re still in school), which can help reduce your balance in the long term. Just note any payments made during a grace period aren’t counted toward forgiveness programs, like Public Service Loan Forgiveness (PSLF) or income-based repayment (IDR) plans. More on those programs below.

The vast majority—90%—of loans are federal. But if you have private loans, your repayment process might be a little different. Not every private lender offers a grace period—some may require payments while you’re still in school. If you’re a private borrower, you’ll want to review the repayment terms ASAP to make sure you don’t fall behind. One thing to check if you are granted a grace period, according to the Consumer Financial Protection Bureau: Will the interest that accumulates during the grace period and be added to the principal?

2. Figure out how much you owe—and to which companies

Your grace period is a great time to get a handle on exactly how much you owe and to which loan issuers, says Rick Castellano, vice president of corporate communications at Sallie Mae. Make a list of all of your loans, the total balance of each, interest rates, and which companies you owe money.

“This may sound overtly simple, but it’s one of the things every student should know,” says Castellano. “Do you owe the federal government? Who is your servicer?” This information is crucial when setting up a plan to pay your loans back.

While you may have taken out federal loans, the government contracts with companies like FedLoan and Nelnet to manage billing and other services. This shouldn’t come as too much of a surprise, because you interacted with these companies when you took the loans out. But you can also find your servicer listed in your My Federal Student Aid account.

For private loans, your servicer is your lender. They will not be listed in a federal student aid account.

3. You can opt into a different repayment plan

For federal loan holders, your loan servicer will automatically place you on the standard repayment plan when you graduate, meaning you’ll pay a fixed monthly amount over 10 years. That will save you the most on interest over the course of the loan, but the payments might be too high for many borrowers—especially new grads—to manage. You can select a different one, depending on your circumstances, which many grads may not be aware of, says Castellano.

Doing so can help make your monthly bill more manageable so you don’t struggle to pay it off. An IDR plan bases a borrower’s payment on their income and family size, for example, which can reduce your bill to as little as $0 a month. These plans may also offer forgiveness after 10 to 25 years of repayments.

You should also look into PSLF if you work in the public service sector. Teachers, nurses, doctors, government workers, and nonprofit employees, among others, can qualify to have the remainder of their loan balance forgiven after 10 years of on-time payments.

4. Communicate with your loan servicer

If you start having difficulty repaying your loans each month, contact your servicer to see what options are available to you. You might be able to find a better repayment plan, or get your loans deferred for a time.

This is true even for private servicers, says Castellano. They may also be willing to work with borrowers on modifications to their repayment plans. But you have to ask for help.

“If you do run into trouble, don’t bury your head in the sand and wait to be contacted. Reach out and be proactive and the vast majority of times, your lender will help you out,” he says. “There’s no benefit for a lender when a student defaults.”

5. Don’t forget about your other financial goals

Student loan debt can seem overwhelming, especially when you are starting your first job. But paying them off will be one of several financial goals you’re likely to juggle throughout your life. Don’t lose sight of that.

One mistake you don’t want to make: Throwing extra money at your loans instead of saving for an emergency or for your retirement. Yes, it can seem impossible to stretch your dollars to cover bills, loan payments, and savings, especially at the start of your career. But the more you save now, the better off you’ll be throughout your life.

You absolutely need to make the minimum payments on your loans each month. But after that, you’ll want to do the math to see where it makes the most sense to put your money. If your employer offers a 401(k) with a matching contribution, for example, that’s a no brainer to participate in: A matching 401(k) contribution is an automatic 100% return on your money.

At the bare minimum, contribute to your 401(k) up to your employer match, and try to put a little bit into liquid savings each month. As you earn more and more, you can recalculate your contributions to your various financial goals.