Sarah Dunbar ’16, Accounting
As we near graduation it’s time to celebrate and congratulate ourselves on a job well done! It’s not an easy accomplishment to persevere through the challenges of college to complete your degree. All of the late night study sessions and Top Ramen breakfasts have finally paid off and it is time to take that next step in our lives. As we say farewell to the many experiences we’ve had at PSU, it’s time to say hello to our new best friend, Sallie Mae.
Sallie Mae* is one of the nation’s largest educational loan servicers, for private and federal loans. It works closely with the Department of Education to collect on the student loans it disburses through FAFSA. Sallie Mae is one of those friends who is always there for you in the beginning, always there with a helping hand to support you through the difficult times, but you know they are only being nice so they can cash in the favor later.
When I made the decision to go to college I happily accepted her help, but I never fully understood what I was getting myself into. So I decided, with less than a month to go, to figure it all out.
1. Understand Your Loan(s).
When I first started this process I had no idea how many loans I actually had or what their balances were. Thankfully, the National Student Loan Data System exists. Once you create a login, NSLDS provides a detailed list of all of your outstanding federal loans, including dates when payments are required and the name of your loan servicer. If you have private loans, it is recommended to reach out to your specific lender to understand the details of your loan.
The NSLDS and Department of Education provide a breakdown of the Federal Loans provided. Under the Direct Loan program, the U.S. Department of Education is your lender. There are three main types of Direct Loans:
Direct Subsidized Loans: made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education; Interest does not start accruing until after you have graduated.
Direct Unsubsidized Loans: made to eligible undergraduate, graduate, and professional students, but in this case, the student does not have to demonstrate financial need to be eligible for the loan. The kicker? Interest starts accruing from the date of disbursement.
Direct PLUS Loans: made to graduate or professional students and parents of dependent undergraduate students to help pay for education expenses not covered by other financial aid.
Additionally, the Federal Loan program offers Perkins loans. Perkins loans are a school-based loan program for undergraduates and graduate students with exceptional financial need. Under this program, the school is lender.
2. Determine Your Monthly Budget
Adding an additional expense to your monthly budget can be scary, regardless of your post-grad plans. This is why it’s important to know how much you can realistically pay on a continual basis for your student loans.
In my last blog post I talked about tips on how to build an emergency fund into your monthly budget, you can utilize the same philosophy here. Look at your projected income and deduct all of your current necessary expenses, and find little ways to reduce the non-essential expenses (do you really need the two DVDs at a time plan from Netflix?) Once you know how much you can comfortably spend on student loans, you can then pick the right payment plan.
Keep in mind that many federal student loan programs provide a 6-month grace period after graduation before your first payment is due. This provides time for new graduates to get settled and find a steady stream of income. Note: Most loans will start accruing interest for this 6-month period, so if you can start making payments immediately, it will cost you less in the long run.
3. Determine Your Payment Plan
Most graduates will take on a traditional payment plan for their loans. Traditional plans typically span over 10 years, include a required minimum payment of $50 (or more depending on your loan amount), and have the benefit of paying the least amount of interest over the life of the loan compared to other payment plans. Two other variations of traditional plans include extended plans, which amortize the loan over 25 years, and graduated payment plans, which slowly increase the monthly payment over time.
An alternative to traditional payments are Income-Based Repayments. With Income-Based Repayments your monthly payments are capped at a percentage of your income.
One unique opportunity provided to Federal Direct Loan recipients is the Public Service Loan Forgiveness program, which provides an incentive for graduates to work in either the public or non-profit sector. If you are interested in working in one of these industries, check out the PSLF website for more information.
4. Set Up Auto-Pay
Adjusting to life after college can be scary. Maybe you’re moving to a new place, starting a new job, navigating a newly free social life. It’s easy to lose track of all of the moving parts and forget to make your payment. Setting up auto-pay, like you may already do for your other bills, is an easy way to make sure you’re on track. Falling behind on payments can have a serious impact on your credit score, so why risk it? On the plus side, some loan servicers provide benefits, such as interest rate reductions, for those who enroll in auto-pay. Check with your individual servicer about your options.
5. Make Friends with Your Loan Servicer
Yes, Sallie Mae is quite demanding when it comes to getting repaid, yet she also is flexible when it comes to how and when she gets the money. Because life isn’t always predictable, it’s important to build a relationship with your loan servicer from the time you believe you may not be able to make a payment on time or in full. There are two main avenues through which to postpone or reduce your student loan payments, deferment and forbearance.
Deferment: Period during which your principal payments are temporarily delayed.
Forbearance: Up to a 12-month period where your payments are postponed or reduced. This is an option if you don’t qualify for deferment but your loan servicer may grant the reprieve if you are having significant financial difficulties or illness.
For a full list of qualifying conditions, check out this web page. In any case it is important to stay in contact with your loan servicer about your plans and options. Both deferment and forbearance require documentation and a formal request to be put into place.
Whether you’re graduating in a few weeks or a year, it’s important to understand your relationship with Sallie Mae and any other financial entity you interact with. Financial aid is a big part of being a college student. Thankfully, we’re not the first students to have to deal with this issue. Work with your friends, family and academic advisors to find the right repayment schedule that works for you!
*Correction: The business was spun off in 2014 into a separate, independent company Navient Corporation. It owns federal and private student loans and services loans on behalf of Sallie Mae and other parties, such as the U.S. Department of Education. Sallie Mae transformed into a banking and financial services company offering private education loans, goal-based and traditional savings products, scholarship search and college financial planning tools.
~ Sarah Dunbar ’16, Fearless Senior