The Inspiring Story of Morehouse College Graduates
Morehouse College commencement speaker Robert F. Smith made headlines in May of this year when he announced he would completely wipe out the student loan debt for every single member of the class of 2019. Nearly 400 graduates from Morehouse now find themselves debt-free as they begin their post-college lives, thanks to Mr. Smith’s generosity.
This can be a tough story to read if you’re one of the millions of college students graduating with student loan debt. But even without a generous billionaire benefactor to erase your debt, you can feel in control of your student loans. Here’s how you can start making your student loan payments, without feeling overwhelmed.
Calculating Your Student Loan Balance
Typically, borrowers take out student loans on an annual basis rather than in one fell swoop. That means you may have a number of loans, possibly from various lenders. This also makes it easy to ignore your full balance, since it requires some effort on your part to calculate the total. However, burying your head in the sand will only make repayment more difficult once your grace period ends. It’s far better to be prepared when the bills start arriving. To calculate your full balance, make sure you track down each and every loan you took out. Start by checking your federal loan balances through the National Student Loan Data System. If you have any private loans, that can make your search a little more difficult, since there is no central database of such loans. If you’re not sure of your private loan information, contact your alma mater for the names of your private lenders. From there, you can contact each lender for your total, and find out how long your grace period is and what you will owe per month. This is also a good time to reach out to all of your lenders with your most current contact information. Making sure they know how to reach you is the best way to stay on top of your repayment schedule.
Take Advantage of the Grace Period
Most borrowers will have a six-month grace period after they graduate before they’re required to begin making payments. Whether you’re lucky enough to step right into a job or you’re figuring out how to make ends meet with multiple side hustles, this grace period gives you an opportunity to figure out how to handle your finances as a newly-minted adult. Use this time to create and live within a budget. Consider setting aside the monthly amount of your student loan payment in a savings account. That will get you used to budgeting for your student loan payment and can give you a good start on an emergency fund.
Choose the Right Repayment Plan
The standard repayment plan typically equals monthly payments for 10 years. This option works for the majority of borrowers and makes budgeting relatively simple. However, if you’re graduating into tough job prospects or any other unusual circumstances, the 10-year repayment plan may not be your best option. If you have federal student loans, you can also choose a different repayment plan that may better fit with your current economic circumstances. Some of these options include:
- Extended Repayment Plan: If you owe more than $30,000, you can qualify for this fixed or graduated repayment plan which gives you up to 25 years to pay off your loans.
- Pay As You Earn (PAYE) Plan: Sets your monthly payment at 10 percent of your discretionary income, but caps your monthly payment at no more than you would have paid under the standard 10-year repayment. Your payments are recalculated each year, and if you have an outstanding balance after 20 years of making on-time payments, the remaining balance will be forgiven.
- Income-Based Repayment: If you have a high level of debt compared to your income, you may be eligible for income-based repayment, where your monthly payment amount is set at 10 or 15 percent of your discretionary income. Your payments are recalculated each year, and your outstanding balance will be forgiven after 20 years of on-time payments.
Explored Deferment and Forbearance Options
If you find yourself in a tough financial situation, such as unemployment, illness, or new parenthood, you can potentially pause your student loan payments through deferment or forbearance. Deferment generally allows you to pause payments in six-month increments, although you may not be responsible for paying the accrued interest during this period. Forbearance allows you to pause payments for up to 12 months at a time, but the interest will continue to accrue. Both options should be used sparingly and reserved for true financial emergencies.
Consider Consolidation or Refinancing
If you have multiple federal student loans, consolidation can simplify your repayment by combining them into one loan with a single repayment schedule. This can potentially lower your monthly payment, although it may extend your payoff date. Refinancing, on the other hand, involves obtaining a new loan from a private lender to pay off your existing loans. This can potentially result in better interest rates or terms, but it’s important to weigh the loss of federal benefits, such as access to income-driven repayment plans and deferment or forbearance options.
The Road to Debt-Free
While the 2019 graduates of Morehouse College may have received a head start, all student loan borrowers can reach the day when their debt is in the rear-view mirror. By understanding your loans, exploring repayment options, and staying proactive, you can take control of your student loan debt and work towards a debt-free future. It may take time and effort, but the peace of mind and financial freedom are well worth it.