Each year, millions of students walk out of the classroom, get a job and realize there's no earthly way they can make their student loan payments and still cover the rent.
Luckily, the federal government has ways of helping you minimize the pain of federal loans. Follow these quick steps to keep ahead of the game:
1. Assess the damage
To understand what you're up against, get the facts about your student loans. Grab your Federal Student Aid PIN and head over to the National Student Loan Data System for Students to get a printout of all of your federal student loans.
2. Estimate your payment amounts
The U.S. Department of Education has a Repayment Estimator to help you see monthly and overall payment estimates. You'll need to sign in with your PIN to use this tool.
3. Consider consolidation
If you've got multiple federal student loans, look into consolidation. This will make repayment easier because it brings all of your loans under a single servicer and allows you to make one payment. This Forbes article breaks down the pros and cons of student loan consolidation.
4. Choose the right repayment option
Forbearance is a sucker's bet because it causes interest to capitalize. In other words, interest piles up during forbearance, and you end up paying interest on top of interest over the long term.
Rather than falling into that trap, look into a repayment option that works for your financial situation. For many borrowers, repayment plans that hinge on your income will give you the best bang for your buck.
Federal Student Aid gives you a comprehensive overview of the repayment plans, but here's what you need to know:
-- Graduated repayment. The standard repayment option for federal student loans is 10 years, but most people make far less in the first few years after school than they do later on. The graduated repayment plan lets you keep payments low for the first two years, but then they rise gradually every two years for the life of the loan.
This is a tricky plan to take on because it results in far higher payments later on than would otherwise be the case. For those who need a little time to ramp up their income, however, it's a choice to consider.
-- Extended repayment. Rather than paying for 10 years, you can get your loan term extended to 20 or even 25 years. This will lower the monthly payment amount, but beware: by extending the term of the loan, you could be spending more than double on interest charges.
-- Extended graduated repayment. This is like the graduated repayment option, except it extends the repayment for up to 25 years.
As with graduated repayment, payments will skyrocket as time goes on. And the interest charges over the life of the loan will be much higher than in a 10-year repayment scheme. Use this option only when you've got no other viable choices.