Leaving college with massive student loan debt can put a damper on your post-graduation party plans. Sure, you’re done with school and about to enter the “real world,” but you’re forced to do it with the burden of debt on your shoulders.
You might have a new job lined up, but you’re already picturing your income being siphoned off by your student loan payments. Or perhaps you haven’t found a job at all and are worried about how you’ll pay back your loans. Understandably so: the average 2016 graduate who took out loans leaves school with $37,172 in debt.
But the best thing you can do following graduation is to stop worrying and find a payment plan that works for you. The right repayment scenario will be different for everyone, but it helps to know your options.
Here are seven options to consider as you begin mapping out your post-graduation lifestyle and budget:
1. Standard Repayment Plan
If you have a solid income following college and your student loan payments are manageable, your best option is likely sticking with the Standard Repayment Plan for federal loans.
This is the default repayment plan for new grads. Payments are spread out over 10 years, with the balance paid down incrementally during that timeframe. While your payments may be higher under the Standard plan, you save a lot of money on interest over the relatively short repayment timeline.
2. Income-Driven Repayment
Several income-driven repayment programs are available to students who owe more money on their federal student loans than they can reasonably pay back. These programs include Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR).
While all these plans work differently, each of them allows you to pay a smaller amount towards your student loans every month. And any remaining debt after the 20-25 year repayment period (depending on the specific plan) is forgiven.
The downside to these plans is you’ll be paying your loans longer than you would under the Standard Repayment Plan. That means an extra decade or more of making student loan payments and thousands of dollars in extra interest. However, the fact that your total loan balance may be forgiven at the end can be well worth it if you’re carrying crushing levels of student loan debt.
3. Deferment
While your best bet is to get started with repayment as soon as possible, there’s always the chance your finances aren’t ready for the commitment. Fortunately, if you don’t have the means to make student loan payments, the government offers temporary deferment. If you qualify, you may be granted some extra time to begin repaying your federal loans.
Keep in mind though, that some loans will continue to accrue interest even though you aren’t required to make payments. That means you could end up with an even larger balance ― and larger payments ― when the deferment period is over.
While qualifying for deferment can buy you time, it’s really just a band-aid solution. You should only choose deferment as a last resort.
4. Forbearance
Another option when you afford to make student loan payments is forbearance. Like deferment, forbearance allows you to pause payments ― up to 12 months in this case. On the flip side, however, interest will accrue on all types of loans during this time.
If you owe a lot of money on your student loans, allowing them to go into forbearance can cost you a pretty penny in terms of accrued interest. And remember, the interest that tacks on while you’re in forbearance isn’t going anywhere; you’ll have to pay it off eventually since it becomes part of your total loan balance.
However, forbearance might be necessary if you’re experiencing financial hardship. And if you have an illness or are under financial stress, your servicer may be required to comply. Still, this solution should only be used as a last resort since it could cause your total loan balance to balloon over time.
5. Refinancing
If you’re carrying any student loans with high interest rates, you might benefit from student loan refinancing in order to get a lower rate and/or better terms. The idea is that, by trading your old loan (or loans) in for a new one, you can save money on interest or shorten the length of your loan. Plus, as an added benefit, you can consolidate multiple loans into a single loan.
Keep in mind that If you refinance federal student loans with a private lender, you’ll lose certain government protections, including the options of income-driven repayment, deferment, and forbearance. You should also run the numbers to make sure any new loan product you’re considering is truly a better deal. While you might score a lower interest rate, a new loan can result in an origination fee (added charge) and start your repayment timeline over.6. Loan Forgiveness Programs
6. Loan Forgiveness Programs
Public Service Loan Forgiveness (PSLF) allows graduates who pick specific careers to have their loans completely forgiven after 10 years of working for a qualified employer and making consistent payments.
To be eligible, you must work in a qualifying government, nonprofit, or other public service position at least 30 hours per week. You must also be on a qualified repayment plan, which includes income-driven repayment.
But if you don’t want to pursue a career in public service in order to get your loans forgiven, all’s not lost. Some specific career fields also have their own forgiveness programs such as medicine, education, law, and more. There are also loan forgiveness programs offered through certain states and schools. Student Loan Hero’s Complete Guide to Student Loan Forgiveness highlights some of those options if you’re interested in learning more.
7. Pick Up a Side Hustle
If you don’t necessarily need financial help, but would like to pay off your debt as fast as possible, consider focusing on ways to increase your income and make extra payments.
With a “side hustle,” you can bring in extra cash on top of your full-time gig and deplete your loan balance that much faster. And the more debt you can pay off quickly, the shorter your repayment timeline will be – and the more money you’ll save on interest.
You don’t have to get a part-time job, either. Plenty of side jobs offer flexible hours and good pay, such as babysitting, freelance writing, driving for a rideshare service, or running errands through a website like TaskRabbit. Any and all money you can save up can be used to make student loans a thing of the past.
Final Thoughts
Graduating from college with debt can be stressful, but you’ll be in a much better place emotionally if you have a plan. Almost any of these options can be worth considering depending on your situation. Just make sure to conduct due diligence before you sign up for a program that might be hard to get out of.
A life without loans can be yours, but it can be here sooner if you make a solid choice from the start.
More from Student Loan Hero:
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