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Now that you’ve graduated from college and started your career, you may have already received some student loan advice from well-meaning confidantes (or strangers, let’s be honest).

But something that worked well for a family member or friend may not work for you. With student loan payments looming, it’s wise to create a student loan repayment strategy based on your unique situation as soon as possible.

That includes understanding what type of student loans you have, what repayment options are available, and how to eliminate your debt as quickly as possible.

5 Pieces of Student Loan Advice to Help You Start Off On the Right Foot

Leaving college and entering the so-called “real world” can be overwhelming enough as it is. Knowing how you’re going to pay down your student loans can make everything else seem a little easier.

As you consider the right repayment strategy for your student loans, these tips might help. This stuff can get complicated, so of course we always recommend that you speak to a qualified financial advisor to help determine what’s best for you and your situation.

1. Know What Type of Student Loans You Have

There are two types of student loans: federal and private. The type of student loan you have can help determine what sort of repayment options are available to you and if you qualify for certain benefits, including student loan forgiveness and income-driven repayment plans. (Private lenders don’t typically offer flexible repayment options like these, so if your student loans are eligible for them they’re probably federal loans.)

If you don’t know what type of student loans you have, finding out should be easy. If you applied for student loans by filling out the Free Application for Federal Student Aid (FAFSA®), for example, you have federal loans. You can also use the National Student Loan Data System (NSLDS) to track down all of the information on your federal student loans.

If you applied with a private lender and underwent a credit check to get approved, you have private student loans. If you’re still not sure, check with your student loan servicer. You likely received an email or letter from your servicer encouraging you to open an online account. Find that message and either email or call your servicer and ask.

2. Know When Payments Start

If you haven’t already started making monthly payments, it’s a good idea to find out when they’re due and to set up your payment schedule.

In most cases, you’ll have a six-month grace period from the time you left school. Check with your servicer as soon as possible to find out exactly when your first bill is due is and how to make payments.

3. Understand Your Repayment Options

Depending on what type of student loans you have, you may have different repayment options. With federal loans, for instance, you typically start out with the default 10-year repayment plan.

To simplify things, you can consolidate your federal student loans through the Department of Education . But while this can replace several loans with one, you can end up with a higher interest rate overall.

That’s because the government takes the weighted average rates on all of your loans and rounds it up to the nearest one-eighth of a percent (0.125%).

If you can’t afford your monthly payments, however, you can apply for one of four income-driven repayment plans, including:

•  REPAYE Plan: Your monthly payments are generally 10% of your discretionary income, and your repayment term will be extended to 20 or 25 years.

•  PAYE Plan: Your monthly payments are generally 10% of your discretionary income, and your repayment term will be doubled to 20 years.

•  Income-Based Repayment (IBR) Plan: Your monthly payment will generally be 10% or 15% of your discretionary income, and your repayment term will be either 20 or 25 years.

•  Income-Contingent Repayment (ICR) Plan: Your monthly payment will be calculated as the lesser of 20% of your discretionary income or what you would pay on a 12-year repayment plan with fixed payments. Your repayment term will update to 25 years.

Anyone can apply for the REPAYE and ICR plans , but you need to demonstrate financial need to get approved for the PAYE and IBR plans.

With federal loans, you may also qualify for the Public Service Loan Forgiveness program. Through PSLF, you can qualify to have your loans forgiven after you’ve made 120 qualifying monthly payments on an income-driven repayment plan while working for an eligible employer.

Eligible employers include government organizations, tax-exempt not-for-profit organizations, and other not-for-profit organizations that provide qualifying public services.

Only Direct Loans are eligible for PSLF, so if you have a different type of federal loan —like a Federal Family Education Loan (FFEL) a Perkins Loan—you’ll need to consolidate it with a Direct Consolidation Loan.

Depending on your career choice, there may be loan forgiveness program options for you, such as through the military, schools, or hospitals.

If you have private student loans, your repayment term was determined by you and the lender when you first applied for your loans. Private student lenders typically don’t offer student loan forgiveness programs, such as SoFi.

4. Consider Refinancing Your Student Loans

Of all the student loan advice that you receive, this tip could make the biggest difference in eliminating your debt. Refinancing your student loans can save you thousands by reducing your interest rate, shortening your repayment term, or both.

Lenders like SoFi offer fixed and variable rates that can be lower than what you’re currently paying. If you qualify, SoFi will pay off your current loans with a new loan.

So, like federal loan consolidation, you can replace several loans with one. But if you qualify, you can also get a lower interest rate, which can reduce the amount of money you spend on interest over the life of your loan.

Remember, however, when you refinance your federal student loans with a private lender, you forfeit access to federal benefits like income-based repayment plans and student loan forgiveness.

5. Avoid Missing Payments and Defaulting

Whatever you do, avoid the temptation to just stop paying your student loans. You typically can’t get student loans discharged in bankruptcy like you can other debts, and defaulting on your student loans could damage your credit.

What’s more, the federal government can garnish your wages and tax refund for payment on federal loans, and private student loan companies can sue you.

In other words, repaying your student loans may not always be easy. But the alternative can be so much worse.

Finalizing Your Student Loan Repayment Strategy

After you consider these tips for paying off student loans, keep in mind that there’s no single right answer. Start by looking into federal loan consolidation, income-driven repayment, and student loan forgiveness.

But also look into refinancing your loans to see if you can save yourself both money and time. To see what your student loans could look like if you refinance with SoFi, take advantage of our easy to use student loan refinance calculator.

Regardless of how you choose to pay off your student loans, consider adding extra payments each month to pay down your debt even faster. This may require cutting back in other areas of your budget, but it can pay off in the long run.

And of course, we always recommend that you speak to a qualified financial advisor to help determine what’s best for you and your situation.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
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Considering the over trillion-dollar student debt-load carried by millions of graduates in the U.S., it’s not exactly a surprise that many are exploring options for what their repayment journey will look like. For those looking for a lower monthly payment, a common option is income-driven student loan repayment.

For some students, an income-driven repayment plan, could be the best available choice. For example, this may be the correct course of action for those planning on having their loans forgiven through the Public Service Loan Forgiveness program.

Other times, this might not be the best or most affordable option over the long run, even for those looking for a lower overall monthly payment. That’s because lowering your payments often means extending your repayment timeline, which could mean paying more interest over the life of the loan.

It can be hard to do an apples-to-apples comparison of the two common options (a student loan income-driven repayment plan via the federal government and a student loan refinance from a private lender). That’s simply because what a borrower might pay on an income-driven repayment plan varies from person to person. However, it is still possible to make an informed decision about which makes more sense for your financial and personal situation and money goals.

The first step is gaining a thorough understanding of both common options. Then, you can make an informed decision about which is a better fit to your life and goals. Below, we’ll look at some pros and cons of both.

Income-Driven Student Loan Repayment

To understand income-driven repayment plans, it helps to first wrap your head around a standard repayment plan. Most people who take out a federal student loan or loans are opted into a repayment plan parsed out over 10 years. But standard repayment might not be the best option for everybody, because those carrying high debt balances may have a sky-high monthly payment.

The federal government also offers four income-driven repayment (IDR) plans, which are need-based options where monthly payments correspond to your income. Depending on your income, and by stretching these payments out over as many as 20 or 25 years, monthly payments could be quite minimal compared to the standard 10-year repayment plan.

You may have already caught onto this, but a student loan income-driven repayment plan is only offered on federal student loans. Federal loans typically offer more flexibility in repayment than private loans, which are procured from a bank, credit union, or other lender.

If you are looking for some respite from your monthly payments on private loans, you’ll have to speak with each lender to see whether they can work with you. (That, or you can consider refinancing, which we’ll discuss below.)

While choosing one of these plans may help to lower monthly payments, they generally will not lessen how much you pay over time. Spreading your loan out over 20 or 25 years could actually increase how much you pay in interest.

Why does this happen? Because with a low monthly payment, the borrower might not be chipping away at much of the loan’s principal, on top of which interest payments are calculated. Even worse, if payments are too low they might not even cover the entire interest charge for the month, which means that interest is added to the balance of the loan (is capitalized).

Because your monthly payment amount is contingent on your income, your income and corresponding payments will be reassessed each year. This means that your monthly payments will likely fluctuate over time.

Loans on an income-driven repayment plans are often forgiven at the end of the 20 or 25-year repayment period. But, under the income-driven repayment plans, any amount that is forgiven will be taxed as ordinary income in the year that the loan is forgiven. For many graduates, this is a harsh realization in the year that the loans are forgiven, especially if the loan has grown in size over time due to capitalized interest.

Any person considering one of these plans in order to have their loans forgiven will want to seriously consider the implications of a hefty tax bill. You should consider how you will be prepared to pay this bill. Will you save extra each month for taxes, in addition to your monthly student loan payment? These are all questions that you may want to research on your own, and potentially discuss with your loan servicer or a financial advisor.

Refinancing Student Loans

People with a student loan or multiple loans, especially loans with higher rates of interest, could consider refinancing instead. With refinancing, the new lender will pay off a borrower’s old loans with a new one.

Depending on the lender, this can be done with both federal or private loans. Generally, the bank or lender evaluates a potential borrower’s financial situation to see if they qualify for a better interest rate. At this point, the potential borrower can also look at options for lengthening or shortening the repayment timeline. This is typically called “changing the terms” of your loan.

Let’s talk about what it means to change the terms of a student loan. In an ideal world, you’re either keeping the same term (or even shortening the term), and when combined with a (hopefully) better rate of interest, you’ll likely save some money on interest. But it doesn’t necessarily have to be this way. You could also extend the length of the loan, remove cosigners, change from a variable rate to a fixed rate, and so on.

Why might one extend the life of their loan via refinancing? Usually, a borrower would do this to get lower monthly payments than they have on a standard, 10-year repayment plan. To be clear, this could cost a borrower more over time even if the loan is refinanced to a lower rate. That said, for some borrowers it still may be a better option than switching to an income-driven repayment plan.

Of course, you’ll want to do a side-by-side comparison of both options, although that’s not a particularly easy task considering that you can’t really predict how much you’ll pay on an income-driven repayment plan over the duration of a student loan, because it varies depending on your income each year.

And with a 20-year fixed-payment refinanced loan, you’re actually paying off the entire balance of the loan. This means you won’t have any part of the loans forgiven, which saves you from a potentially high tax bill .

Something else to consider: When you do a 20-year refinance that allows you to pay extra toward your loans without penalty, you can pay your student loans back faster than the 20-year period. For example, you could potentially pay a 20-year loan back in 10 years by making extra payments, all while keeping the flexibility of the resulting lower monthly payment.

Every lender has their own criteria for determining whether someone qualifies for particular types of loan and at what rates, but it’s usually based on credit score and history and your income (and may include other factors).

When is refinancing not a good idea? Basically, if you are ever planning to use one of the federal loan repayment or forgiveness options, like Public Service Loan Forgiveness. Because refinancing is the process of paying off loans with a private loan, refinancing federal loans with a private lender means you won’t have access to these federal repayment programs anymore.

At the end of the day, it’s up to you to make an informed decision about which of the two options is best for you and your financial situation. Good luck in your journey and in paying back your student loans!

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice about bankruptcy.
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Congratulations! Not only have you graduated college, but you’re also starting your first job. It’s an exciting time, and a great opportunity to use what you learned in college and apply it to life on your own: how to manage your time, how to meet and engage with different types of people, and, of course, all the knowledge you picked up in class. However, something else many students pick up in college is student loan debt.

According to Forbes , student loan debt is quickly catching up with mortgage debt.

In fact, student debt now ranks as the second-highest consumer debt category in the United States. CNBC reported that in 2018, the average student loan debt upon graduation was $37,172, which marks a $20,000 increase from 2005.

And it’s not just a few people graduating with debt—an estimated 70% of all college students will graduate owing money to somebody else.

In fact, Americans collectively hold $1.5 trillion in student debt. That’s a lot of money, especially when you take into account how little entry-level salaries can pay these days, even for college graduates.

According to the National Center for Education Statistics , the most popular undergraduate degree in America is a business-related degree. It’s undoubtedly a versatile academic path and business majors have the ability to work in a number of fields, but it’s a degree that comes with an average entry-level job salary of just $62,000 a year, according to PayScale .

Trying to balance an entry-level paycheck with rent, food, bills, and massive student loans can be overwhelming, but it’s not impossible. Delaying loan payments isn’t necessary; here’s how you can start paying off your student loans on just an entry-level salary.

Creating a Budget That Includes Paying off Debt

Upon graduation and starting your new job, it’s key to create a budget that’s comfortable for you. This can include setting aside money to grow both an emergency fund and a retirement fund.

To create a budget, gather all of your financial documents, including your post-tax income statements. You’ll also need to compile all your monthly bills, such as rent, utilities, food, entertainment expenses, insurance, the minimum requirement on your student loan repayments, and anything else you spend money on each month.

Tally up your expenses, and see how much you have left over after putting your after-tax income toward your bills. If you have money left over, consider stashing some away in an emergency fund and some in a retirement account—any amount can help. (Note: Retirement may seem far away, but if you start early you could see serious returns in your golden years.

As NerdWallet calculated, assuming a 7% interest rate, if you start saving $200 a month when you turn 25, you could have about $528,000 by the time you turn 65.)

Consider a Job Eligible for Public Service Loan Forgiveness

If you’re willing to work in the public sector and are open to relocating, several states have programs that may forgive part or all of your student loans. These programs are often geared toward students who recently completed grad school.

So a forgiveness program like this might be a fit for post-grads earning an entry-level salary. For example, if qualified health care professionals agree to work in areas of Alaska experiencing a provider shortage, the state may pay off up to $35,000 of those graduates’ loans.

California offers a similar deal for health care workers, offering repayment assistance up to $50,000 for a two-year commitment to working full time in high-need areas.

In North Dakota , qualified veterinarians can see up to $80,000 of their student loans repaid by the state if they are willing to live and work there for four years.

On the federal level, teachers may be able to take advantage of the Teacher Loan Forgiveness Program in all states. To qualify, the teacher must teach full time for five consecutive academic years in a low-income school or educational service agency.

Consider an Income-Based Repayment (IBR) Plan

The government is willing to help those who cannot afford their current federal student loan payments with programs including IBR, Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).

What all of these essentially do is rejigger your repayments to an amount you can afford each and every month. NerdWallet explains that the right IBR plan could reduce your payments to as little as 10% of your discretionary income each month. So, if you took out a loan after 2014 and are currently paying more than 10% of your discretionary income on a student loan, the IBR plan may be an excellent option for you.

Think about a Side Hustle

Sometimes, an entry-level salary isn’t enough to make a dent on your student loan balance. For those feeling particularly underwater with student loan repayments, getting a side hustle may be the answer, but not all side gigs are created equal. To help subsidize your entry-level job salary, look for a gig you’ll actually find fulfilling. This could involve using pre-existing skills, such as freelance photography, copy editing, or consulting.

It could also just be something you enjoy doing and is easy to get involved in, such as driving for a ride-sharing company or completing tasks for people via a site like TaskRabbit. Whatever it is, try to make it fun or useful for your future career goals so it feels less like work.

Look into Refinancing Your Student Loans

If you’re unhappy with your current student loan rates, you may find relief through student loan refinancing.

By refinancing, you could make your student loan debt more manageable and potentially become debt-free sooner. (Don’t forget that refinancing with a private lender means you’re no longer eligible for the federal programs we mentioned above—like PAYE, REPAYE, loan forgiveness, and income-based repayment plans.)

You can start by checking out SoFi’s student loan refinancing options and see if there’s a better interest rate out there for you. You might be able to lower your payments or shorten your term.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
The savings and experiences mentioned herein may not be representative of the experiences of all members. Savings are not guaranteed and will vary based on your unique situation and other factors.
SoFi does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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