Student Loan Timeline for New Graduates

Heather Jarvis and Adam S. Minsky
To minimize your costs and reach your goals, it’s a good idea to reassess your repayment plan each time something significant changes in your life.

To minimize your costs and reach your goals, it’s a good idea to reassess your repayment plan each time something significant changes in your life.

JGI/Jamie Grill via GettyImages

Graduating law students have a lot to think about. You’ll need to pay attention to your student loans while you are studying for the bar examination and conducting your employment search. An organized approach can keep your payments affordable, protect your credit rating, and help you avoid fees and extra interest costs.

Three Months before Graduation

Minimize post-graduate bar review expenses. Many graduating law students borrow to help pay for bar review courses and living expenses while studying for the bar. Unfortunately, federal student loans are not available for these expenses. Post-graduate bar review loans are always private student loans and tend to be risky and expensive compared with federal loans. Understand that these loans are more than just more debt; they are different and more difficult debt. It makes sense to do what you can to minimize your expenses as a third-year student and recent graduate, so you can reduce your private debt burden.

File a federal tax return (even if you don’t have to). Many law graduates will choose one of the income-driven student loan repayment options and will be asked to supply documentation of adjusted gross income. Filing a federal tax return by April 15 of your third year ensures that you will have recent documentation of income to submit.

Two Months before Graduation

Pull together your student loan information. Your options for loan repayment and forgiveness depend on which loans you have. As you approach graduation, visit the National Student Loan Data System to find a complete listing of all your federal student loans. Note the balance, lender, and loan servicer of each individual loan. Your loan servicer is the company responsible for billing and collecting on your student loans.

If some of your loans aren’t listed on the National Student Loan Data System, they are probably private student loans. Pull a recent copy of your credit report from AnnualCreditReport.com to see a listing of all your creditors, including private student lenders, and note the balance and lender contact information for your private loans.

Calendar your first payment due dates. Student loans have a period after leaving school before you must start making payments, but soon after graduation, payments will be due. It’s a good idea to make entries on your calendar so you won’t be caught off-guard when you are expected to make your first payment.

Different loans have different grace periods:

  • Stafford Loans (both Subsidized and Unsubsidized) have a six-month grace period.
  • GradPLUS Loans technically have no grace period but are routinely deferred for six months after graduation.
  • Perkins Loans have a nine-month grace period.
  • Grace periods for private student loans vary significantly, and some private student loans do not have a grace period at all.
  • If you previously consolidated older federal student loans via a federal consolidation loan, those loans do not have a grace period, either.

If you did not enroll in law school until after your undergraduate loans had entered repayment, your grace period on those loans may already be exhausted, and you should be prepared to address those loans immediately following graduation.

One Month before Graduation

Give your loan servicer your new contact information. If you’re moving after graduation, be sure to update your lenders and loan servicers with any new phone numbers, email addresses, and mailing addresses. Loan servicers send lots of important information to borrowers during the period following graduation, and if you miss something, it could be expensive for you. You can avoid loads of unpleasant circumstances by reading and responding to every communication you receive about your student loans.

Two or Three Months after Graduating

Evaluate Whether to Consolidate

A consolidation loan combines multiple loans into one for a single monthly payment and one fixed interest rate. The consolidation loan interest rate is based on the weighted average interest rates of the loans you consolidate, rounded up to the nearest 1/8th of 1 percent, and capped at 8.25 percent. Unless you have variable-rate federal student loans (from before July 1, 2006), consolidating essentially preserves your current interest costs. If you borrowed before July 1, 2006, you may have variable rates on your federal student loans. You can lock in a fixed interest rate by consolidating, and you may get an interest rate reduction. Rates are currently low.

Consolidation used to be a law graduate’s primary option for reducing monthly payments by extending the repayment period and locking in a fixed interest rate. Since the elimination of variable interest rates and the introduction of the income-driven repayment options, borrowers have other ways of accessing affordable repayment plans, and consolidation has become less important. Still, there are reasons to consider whether consolidating should be part of your personal student loan repayment strategy.

Factors to consider when deciding whether to consolidate include:

  • Consolidating your federal loans allows you to group your loans together with one lender, making it easier to keep track. Under the federal direct consolidation loan, you can consolidate just about every type of federal student loan (including subsidized and unsubsidized Stafford Loans, GradPLUS Loans, and Perkins Loans).
  • Consolidating your federal loans into a federal direct consolidation loan can allow you to participate in Public Service Loan Forgiveness (PSLF) by converting any non-direct federal loans (such as FFEL loans and Perkins loans, which do not qualify for PSLF) into a direct loan.
  • Be careful about consolidating older direct loans into a new direct consolidation loan if those loans were previously repaid under an income-driven repayment plan or accrued qualifying payments toward PSLF. Consolidating those loans would restart their repayment clock.
  • Be careful deciding whether to consolidate Perkins Loans because they have special cancellation provisions that would be lost upon consolidation.
  • BEWARE of consolidating federal loans into a private consolidation loan. If you consolidate federal loans into a private loan, you would lose rights and protections, such as deferment, forbearance, cancellation, income-driven repayment, and PSLF. Unfortunately, you cannot consolidate private student loans into a direct consolidation loan.
  • Some borrowers (not most) may have earned modest interest rate reductions called “borrower incentives,” typically granted after a certain number of on-time or automatic payments. If you earned such a perk, you’d lose it by consolidating because those benefits are specific to the lender.
  • If you are a parent and you borrowed Parent PLUS loans for your child’s education, be careful not to include the Parent PLUS loans if you consolidate. Consolidation loans that repaid Parent PLUS loans are ineligible for the most affordable repayment plans.

Evaluate Your Repayment Options

Choosing a repayment plan can be confusing. When evaluating your options, it’s a good idea to consider your current financial situation, your expected career path, and your individual goals. The goal is to minimize your costs over time by repaying your debt as quickly as you can without choosing a repayment plan with payments higher than you can manage.

Standard repayment. Standard repayment (for a loan that isn’t consolidated) means that you’ll pay equal monthly payments over a 10-year period (and note that if you don’t choose a repayment plan within 45 days of being notified, your loan servicer will automatically put you into a standard repayment plan). Monthly payments will be high, but because you’ll pay off your loan quickly, you will pay less interest. If you consolidate your loans, the standard repayment term can be as long as 30 years. A 30-year repayment term will result in lower monthly payments but much higher interest charges over time. If you need low monthly payments, consider the income-driven repayment options before choosing a long-term repayment plan.

Income-driven repayment options. Determine which income-driven options are available to you and evaluate which of the available options provide the most benefits. Direct loans offer three income-driven repayment options, but not every option will be available for every borrower.

  • Income-Contingent Repayment (ICR) is the oldest income-driven repayment plan, but the formula used to calculate monthly payment amounts under ICR tends to result in higher monthly payments than the other options and is typically less advantageous for new graduates.
  • Income-Based Repayment (IBR) requires borrowers to demonstrate a high debt-to-income ratio. Under IBR, annual payments are capped at 15 percent of “discretionary income” and any remaining loan balance is forgiven after 25 years of qualifying payments.

  • Pay As You Earn (PAYE) is available for borrowers with relatively high debt-to-income ratios who borrowed their first student loan on or after October 1, 2007, and borrowed a student loan on or after October 1, 2011. Under PAYE, annual payments are capped at 10 percent of “discretionary income” and any remaining loan balance is forgiven after 20 years of qualifying payments.

  • Revised Pay As You Earn (REPAYE) uses a similar formula as PAYE, but has no eligibility restrictions based on the disbursement dates of the loans, and also has no limitations based on the borrower’s debt-to-income ratio. The repayment term is 20 years of undergraduate loans, but 25 years if the borrower took out loans for graduate school.

While IBR is available for both direct loans and older FFEL-program loans, ICR, PAYE, and REPAYE are only available for direct loan borrowers.

For borrowers who are married, ICR, IBR, and PAYE will consider combined income with the borrower’s spouse when calculating monthly payments, but only if they file taxes as married filing jointly. By filing separately, borrowers can exclude spousal income from consideration, although this could sometimes have tax consequences. Under REPAYE, however, spousal income will always be factored in, regardless of tax filing status.

More repayment options. Under a graduated repayment plan, payments start out low and increase during the repayment period—typically every two years. Graduated repayment can work if you have relatively quick increases in earnings. The benefits of the income-driven repayment options should be considered before choosing graduated repayment.

Extended repayment plans are also available if you owe more than $30,000, but you will pay more interest because the repayment period is longer. Again, if what you need is a low monthly payment, compare the benefits of the income-driven options before choosing extended repayment.

The decision about which repayment plan to choose will depend on many factors, including your anticipated career path. The Department of Education provides information and calculators regarding the various repayment options online at StudentAid.gov.

Evaluate your eligibility for PSLF. Borrowers can get any remaining balance forgiven on their federal student loans after making 120 qualifying payments toward the PSLF program. A qualifying payment is one that is made (1) on a direct federal loan, (2) under an income-driven plan or the 10-year standard plan, (3) while working as a full-time employee for a domestic public entity or a 501(c)(3) nonprofit organization. Learn more about PSLF.

Four or Five Months after Graduating

Start the consolidation process (if you decide it makes sense for you). Visit the Direct Consolidation Loan website and fill out the online or paper consolidation application and all the forms that go with it. The process typically takes between 30 and 90 days. Note that your grace period ends upon consolidation, so do not initiate this process until you are ready or toward the end of your grace period.

Select a repayment plan and submit the necessary documents. You have choices to make about how you will repay your loans. Your monthly payment and your total cost over time will depend not only on how much money you borrowed and the interest rate of your loan but also on the repayment plan you choose.

Repayment plan selection forms are available through your loan servicer.

Once a Year and When Your Circumstances Change

Reevaluate your strategy. Student loan borrowers can change repayment plans and make additional payments without penalty. If you find yourself experiencing financial stress, there are legitimate ways to postpone or reduce your payments temporarily. Life changes, such as getting married, changing jobs, having a baby, or buying a house, can influence whether your initial student loan repayment strategy is still the best one for you. To minimize your costs and reach your goals, it’s a good idea to reassess your repayment plan each time something significant changes in your life.

On track for PSLF? PSLF has very strict eligibility criteria—only direct loans qualify, and borrowers must be in repayment under an income-driven repayment plan or the 10-year standard plan while working full-time for a qualifying public service employer, which is typically a public organization or a 501(c)(3) nonprofit organization. Borrowers should take the time to evaluate their eligibility for the PSLF program and should periodically submit the PSLF Employment Certification Form (ECF) at least once per year to get confirmation that their employment qualifies, as well as an updated count of qualifying PSLF payments made to date. The ECF should also be submitted whenever the borrower leaves qualifying employment for a new position. 

This is an updated version of an article that originally appeared in the March 2013 issue of Student Lawyer magazine, volume 41, number 7, published by the American Bar Association Law Student Division

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Heather Jarvis is an attorney providing educational resources and training for student loan borrowers and is the founder of askheatherjarvis.com.

Adam S. Minsky is a solo practitioner with a law practice focused entirely on helping student loan borrowers and their families. Learn more at Minsky-law.com.