November is not only the start of the holiday season, it's also loan repayment season for college graduates of the class of 2017.
Most loans enter the repayment process six months after a student graduates or drops below half-time enrollment.So if you graduated last spring, the meter is running.
It's estimated that more than two-thirds of last spring's graduates left with diplomas and student loan debt -- debt that could take a decade or more to pay back.
Here are some tips to help recent college grads get off to a good start repaying their student loans.
- Beware of scammers. Increasingly, fraudsters have been targeting recent college graduates with loan consolidation offers on federal student debt. Avoid these offers -- and their hefty upfront fees -- because scammers are also after access to your student loan account. Besides, you can make your own loan consolidation arrangements free.
The good news: federal and state regulators, acting through Operation Game of Loans, have been cracking down on scammers and identity thieves.
- Get organized. If you haven't done so already, Sallie Mae recommends creating a student-loan checklist with information about each of your loans, including the loan ID numbers, lender names, lender websites, phone numbers and payment addresses, the amount borrowed, the interest rates and monthly payments. Keep any communication you receive on your loans.
If you have federal student loans, you'll be sending payments to a loan servicing company. With private loans, payments will likely go to the lender from which you borrowed. Borrowers with federal loans can track them through the National Student Loan Data System at www.nslds.ed.gov.
- Take advantage of automatic payments. Arrange to have your monthly loan payment automatically transferred from your bank account. Not only will this help avoid late payments, but many lenders also offer a slight interest rate reduction of 0.25 percent on federal loans and 0.25 percent or 0.50 percent on private student loans.
- Target the most costly loan first with extra payments, if possible. Like making an extra payment on a car loan, this will save you the most money and lead to quicker repayment of all your student loans, said Mark Kantrowitz, a financial aid expert with Cappex, an online college advisory service.
There shouldn't be any prepayment penalties, Kantrowitz said.
- If you can't make payments on federal loans, consider asking for a loan deferment or forbearance to temporarily stop or reduce the amount of your debt. More information is available at https://studentaid.ed.gov/sa/repay-loans/deferment-forbearance.
- Be careful about refinancing or consolidating loans. Contrary to what you might expect, the interest rate on a consolidated loan might not be lower than the rate on all your loans. Also, Kantrowitz said, if you consolidate your student loans, you will no longer be able to target those high-rate loans with extra payments.
In addition, refinancing federal loans into private loans means a loss of benefits and other repayment flexibilities if you lose a job or have other financial hardships.
- Paying back student loans also requires the proper mindset and a budget to help you stay on track. You need to pay like clockwork each month, no excuses. That can be painful, but there are plenty of helpful resources available if money becomes tight.
Which brings me to a recent survey from the Comet educational resources firm. It looked at college debt payback habits from among 1,000 borrowers who had graduated college over the past 10 years.
Comet asked participants how far they've come in paying back loans and what they would have done differently, if given the chance.
Among the findings:
- Graduates who paid off the highest percentage of loans relied on parental assistance.
- Those who attended private colleges had the largest debt burdens but had made the most progress in paying down debt.
- Forty-nine percent of the graduates wished they had lived with their parents and attended community college for two years before moving on to a four-year school.
Turning back the clock is not a viable loan repayment strategy, but committing to getting off to a good start certainly is.