12 FAQs About Repaying Your Federal Student Loans
Student loan repayments kick off every year for many grads. The repayment road can seem overwhelming, but options are out there. Here's what you need to know about paying back your student loans.
The past several years have brought rapidly changing news about student loans.
The first student loan payment deadline for many graduates arrived in October 2023, after a multi-year loan pause.
The Biden Administration's proposed new plans to cancel some student debt continues to face legal challenges. In the meantime, you may be starting to navigate student loan repayment and wondering about whether to consolidate vs. refinance your loan and how your student loan payments might affect your credit. Here are facts and strategies to consider.
Prepare for Your Federal Student Loan Repayment
1. I'm Supposed To Pay My Federal Student Loans. What Should I Do?
First, find your loan servicer. A loan servicer manages your payments on your federal student loan. Then, review your account information with the servicer for accuracy and upcoming budgeting. Information to verify includes:
- Contact information.
- Monthly payment amount.
- Payment due date.
- Total owed amount.
- Interest rate.
- Payment plan.
- Autopay enrollment.
- Contact your loan servicer if any information needs to be corrected or updated.
To take advantage of autopay discounts, link your bank account to your student loan account— but make sure your bank account has the funds necessary to make your monthly payment before it's withdrawn.
2. Did the Payments I Made to My Federal Loan While I Was in School Go Toward Principal or Interest?
That depends on whether you have a subsidized or unsubsidized federal loan.
If you have a subsidized federal loan, you weren't required to make payments while you were in school at least part time, and no interest was accruing, so any payments you made went directly to your loan principal — or balance — reducing the total amount you need to repay over time.
If you have an unsubsidized federal loan, parent or Grad Plus loan, after your initial grace period, your loan began accruing interest even while you were in school. So if you made payments, they were typically applied to accrued interest first, then any applicable fees and the remainder went toward principal.
If you check your loan balance with your loan servicer, you should be able to see how your past payments were applied.
Student Loan Repayment Plans
3. What Repayment Plans Are Available for My Federal Student Loans?
The good news is you have options. Eight different repayment plans exist for federal student loans. Choosing the right loan repayment plan depends on your loan type, income, amount you've borrowed, preference for repayment timelines and other factors. Speak with your servicer to determine the best repayment plan for your situation.
4. Are There Any New Repayment Plans?
It's always possible a different repayment plan could be a better fit. The newer Saving on a Valuable Education (SAVE) plan was rolled out in 2023 to reduce payment amounts.
Unfortunately, this plan is currently on pause due to a July 2024 federal court-issued stay. As the Department of Education formulates its next steps, borrowers enrolled in the SAVE Plan were moved into forbearance without payment requirements or accruing interest. Speak with your servicer for more details.
5. If I'm Enrolled in an Income-Driven Repayment Plan, When Do I Re-Certify My Income?
If you're in one of the four income-driven repayment plans, you must typically recertify your income and family size every year.
If you haven't yet been asked to recertify, check in with your servicer to determine whether you should do so, particularly if your financial situation has changed in the past few years.
Consolidation and Refinance Options
6. What's the Difference Between Student Loan Consolidation and Refinance?
| Consolidation | Refinance | |
|---|---|---|
| Entity |
Government
|
Private lenders
|
| Combines |
Federal student loans
|
Federal student loans and private student loans
|
| Interest rates |
Fixed
|
Fixed and variable
|
| Federal loan protections |
Yes
|
No
|
| Benefits include |
Fewer servicers and monthly payments to track
|
Varies but can include fewer servicers and payments to manage; option to extend repayment period; release of a cosigner; interest rate discounts for auto-pay and on-time payments
|
The government's Direct Loan Consolidation program combines one or more federal student loans into one larger loan you repay. You can't consolidate private loans.
In contrast, private lenders offer student loan refinance, which can combine federal and private student loans.
Both programs streamline the payment process. You reduce the number of loan servicers and monthly payments to manage. A fixed interest rate can buffer against unpredictable rate changes.
If you're approved for private loan refinancing, you may be able to lower your rate, extend your repayment, release a cosigner and other benefits — which differ by lender.
However, you may lose specific repayment plan options and other federal loan protections and benefits.
Get a closer look at the differences, benefits and drawbacks from the Consumer Financial Protection Bureau.
7. What Are the Benefits of Refinancing to a Private Student Loan?
Financial institutions provide student loan refinancing with a variety of terms and rates. BECU, for example, in partnership with LendKey, offers student loan refinancing for students and parents.
You might be able to refinance your student loans (both federal and private) into a single loan with a lower interest rate and monthly payment than your current loans.
Research refinance options and compare what your new terms and payments might be. Some potential benefits to look for include:
- A competitive fixed interest rate.
- Release of cosigner after meeting certain conditions.
- Interest rate reduction with automatic payment.
8. I Have a Combination of Federal and Private Student Loans. How Can I Manage Payments?
First, understand which of your loans are private versus federal. Lenders and servicers typically specify federal and private loans.
Then, review your options. You could continue making payments to the different lenders, or you may be able to refinance your loans into one loan.
Planning for Your Future
9. What Can I Do if I Can't Make My Student Loan Payments?
If you're struggling to pay your student loan, contact your servicer. Your servicer helps you find the right repayment plan. You might even qualify for a deferment or forbearance, which provides temporary relief by lowering or stopping payments.
However, interest may continue to accrue on loans in deferment or forbearance, so speak with your servicer about your options.
10. What Happens if I Don't Pay My Student Loans? How Do Student Loan Payments Affect My Credit Score?
Remember, not paying your student loans has consequences. Like other loans, late and missed payments on your student loans will negatively affect your credit. After 30 days past due, your loan servicer will typically report the delinquency to the three major credit bureaus.
After 120 days past due, private student loans could go into default. After 270 days past due, your federal student loans could go into default. Defaulting on your student loans can reduce your access to future student aid and, for federal student loans, the government can garnish your tax refund, paycheck or social security benefits.
On the bright side, payments toward your federal and private student loans can show up on your credit report and help build your credit history.
If you make regular, on-time, in-full student loan payments, your credit score should improve, whether you're repaying private or federal loans.
11. Which Resources or Services Can Help Me Manage My Budget and Student Loan Repayment?
Your loan servicer can best answer any questions about your loans and repayment plans.
If the payment amount is acceptable, but you want to understand how your loan repayment amount fits into your larger budget, a variety of financial and credit services can help.
For example, BECU partners with GreenPath to provide credit and debt counseling services, and BECU members can get a free Financial Health Check. You can also boost your knowledge and confidence in your financial journey through BECU's free seminars, workshops and articles. You can even gamify your financial education with the Zogo app.
12. How Can I Stay Informed About Any Federal Student Loan Policy Changes, Benefits or Forgiveness Programs?
Review the Department of Education's Federal Student Aid site or Department of Education press releases for the most up-to-date information.
Although some initiatives to cancel student loan debt are tied up in legal challenges, other loan forgiveness programs remain in place. Public Service Loan Forgiveness is the most common, according to the Federal Student Aid site. If you qualify for these programs, be sure to stay up to date on any processes and requirements to maintain your eligibility.
Resources
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized financial, tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation when making financial, legal, tax, investment, or any other business and professional decisions that affect you and/or your business.
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Lora Shinn
Contributor