What new graduates need to know about their student loan payments

College graduates who recently received their diplomas may be dreading the next milestone: The start of their federal student loan payments.

Each year, roughly 2 million people in the U.S. are awarded a bachelor’s degree, according to an analysis by higher education expert Mark Kantrowitz. Roughly 60%, or 1.2 million of those students, will also have student debt, he said.

Here’s what new college graduates should know about the loan bills.

In most cases, you likely won’t have to make your first student loan payment until six months after you graduate, thanks to the federal government’s grace period, Kantrowitz said. Those with federal Perkins Loans can get up to nine months, he added.

If your loans are subsidized, the government will pay the interest on your loans during that period, Kantrowitz said. Meanwhile, interest will accrue on unsubsidized loans.

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Some borrowers may miss their first payment due date after the grace period, Kantrowitz said. To avoid that, he recommends putting a reminder in your calendar for about two weeks before repayment starts.

Some people may want to sign up for automatic payments with their student loan servicer, which can lead to a small reduction of your interest rate in addition to reassurance that you won’t get dinged with a late payment. (Before you do so, just make sure your monthly bill calculated by your lender is correct.)

“The best way to reduce stress about student debt is to educate yourself as to how the loans work,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a non-profit that helps borrowers navigate repayment.

Fortunately, the federal government has many options for borrowers worried about being able to afford their bill. Its income-driven repayment plans, for example, cap your monthly payment at a share of your discretionary income.

The Biden administration recently introduced a new IDR plan under which borrowers need to pay just 5% of their earnings after calculated expenses. That option is the Saving on a Valuable Education, or SAVE, plan.

To determine how much your monthly bill would be under different plans, use one of the calculators at Studentaid.gov or FreeStudentLoanAdvice.org.

“Borrowers should choose the repayment plan with the highest monthly payment they can afford,” Kantrowitz said. “This will pay off the debt quicker and reduce the total interest paid over the life of the loan.”

For those who need to prolong their grace period, there are deferments and forbearances, including ones for those who are unemployed or in an eligible graduate school fellowship. (Just keep in mind that during some of these breaks, interest will accrue on your debt and you’ll face larger payments down the line.)

Mayotte also recommends that borrowers research if they’re eligible for any forgiveness programs. Her website, FreeStudentLoanAdvice.org, has a database of such opportunities, she said.