The inspiring commencement speeches are over. The caps and gowns are off. The celebration has subsided. You’re finally out in the real world.
If you’re a recent graduate who borrowed money from the government to pay for your degree, the clock is ticking. You have a six-month grace period — then you will join the rest of us who are paying off student loans for what can feel like the rest of your life.
Thinking about your slice of America’s $1.4 trillion student loan debt tab can feel a little overwhelming, even if your grace period ended a few years ago.
But don’t worry: No matter where you are in the process, Bloomberg has some expert advice for how you can avoid student loan default even if you have no job and no money.
Understand Income-Driven Repayment Options
This is where Bloomberg student loan reporter Shahien Nasiripour says every borrower should start. In fact, he argues that setting up an income-driven repayment plan for federal student loans should be more important to a recent grad than finding their first job, which can be difficult to do and can take longer than the six-month grace period offered by the government.
“Your payments are pegged to your monthly income, and if your income is zero — you have no job, no source of earnings — your payments are zero,” Nasiripour said.
Whether you’re a recent grad or you’ve been struggling to repay your loans for a while, this is perfect for those who owe a huge amount but don’t make much money.
With this option, you will have to check in with your loan servicer once each year to report changes in your income, which could change your monthly payment.
Know How Much You Owe
According to Nasiripour, fear is likely one of the biggest factors holding you back from properly managing your debt. Rather than facing your loans head on, you bury your head in the sand.
The reality is that even if you never open the bills, block all the calls and push the debt from your mind, your student loans are still there collecting interest and waiting for you to pay them off. And, as Nasiripour puts it, “The government is going to get its money.”
Your best bet is to know how much you owe, know your repayment options and get to work on a repayment schedule that fits your income.
Still in School? Skip the Private Loans
Obviously you can’t go back in time if you’ve already accepted loans from private banks to pay for your education. If you did, work with the banks to figure out how to repay them as quickly as possible.
If you are a current college student or thinking about taking out a loan to get another degree, Nasiripour suggests avoiding private loans and opting for more flexible federal loans instead.
While there are some cases that might make private loans a better option for you, Nasiripour says it is the worse option for most. That’s because it’s so much easier to default on a private loan. While you don’t go into default until you miss nine payments on government loans, some private loans can default in as little as 60 to 90 days.
Private banks also tend to offer fewer repayment options than the federal student loan program.
Of course, if you’re still in college Nasiripour also suggests limiting the amount of loan money you take out whether you’re borrowing from the Department of Education or a private bank. Your future self will love you for it.
Desiree Stennett is a staff writer at The Penny Hoarder. She holds a slice of America’s $1.4 trillion student debt bill, just like you.
This was originally published on The Penny Hoarder, one of the largest personal finance websites. We help millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. In 2016, Inc. 500 ranked The Penny Hoarder as the No. 1 fastest-growing private media company in the U.S.
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