Looking for the right place to pay off loans? Unfortunately, there’s no blinking neon sign for borrowers to “Repay Loans Here.”
Instead, borrowers may have to go old school, and make a phone call to meet their new best friend—the student loan servicer. It all starts with contacting the Federal Student Aid Information Center to learn next steps.
Contact Your Student Loan Servicer
Before paying off student loans, graduates will have to figure out who their student loan servicer is. A student loan servicer is the company assigned by the US Department of Education (federal student loan creator) to take care of the day to day servicing of a federal student loan. If a person needs to talk to someone about their federal student loan, they can reach out to the servicers instead of to a government office.
Students don’t have to do anything for their loan to be transferred to a loan servicer. The federal student loan will be transferred to a servicer after its first disbursement. Once that happens, students should expect to be contacted by the servicer.
But, unexpected moves or outdated contact information could mean the servicer doesn’t reach you. If a student needs help figuring out who their servicer is, one option is to call the Federal Student Aid Information Center (FSAIC): 1-800-433-3243.
However, FSAIC can only help students figure out their servicer if they hold federal student loans, not private student loans.
Another option for borrowers with federal student loans is to log into their Federal Student Aid account. From this portal, borrowers can access information on their student loan servicer.
Federal student loan borrowers can also check the National Student Loan Data System to find information about their loan servicer.
Once a student figures out their loan student servicer and contacts them, they can begin sorting through the repayment process. A loan servicer should help a student figure out how to repay loans free of charge.
Be warned, any federal loan servicer that asks for payment may be a scam, warns the US Department of Education.
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A loan servicer can help students and graduates figure out when their loan repayment will begin. Most, but not all, federal student loans have a six-month grace period , or an allotted amount of time before a student has to start paying back the loan.
The student loan grace period generally begins once a student graduates, leaves school, or enrolls in class less than part-time. This time is meant for students to get in contact with their loan servicer and begin setting up a repayment plan, so they don’t have to scramble post-graduation when so many other changes are happening.
Students should be aware that interest on their loan may be accruing during their grace period. For that reason, some students may decide to begin repayment before the grace period is up, in order to keep the interest capitalization down.
Borrowers with subsidized student loans will not accrue interest on their loans during their grace period.
There are some circumstances that can extend, or end a grace period early :
• Being called into active military duty. This will restart the grace period, which will begin again once the student returns.
• Going back to school before the end of the grace period. If a student goes back to school at least part-time, then they won’t have to repay their loans until they finish school, in which case they’ll have another six-month grace period.
• Consolidating loans. If a student decides to consolidate or refinance a loan before the end of the grace period, they’ll start their repayment as soon as the paperwork is processed.
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Selecting a Repayment Plan
During the grace period, students can work with their loan servicer, and other online tools to figure out the right repayment plan for them. The US Department of Education has a loan simulator tool where users can calculate interest rates to help them determine the best repayment scenario.
There are several repayment plans a student can choose from, depending on their finances and the type of federal student loans they have.
• Standard Repayment Plan. All federal loan borrowers are eligible for this repayment plan, where payments are in a fixed amount each month, typically with the plan to pay off the loan within ten years.
• Graduated Repayment Plan. This plan, which nearly all federal loan holders can enroll in, starts out with low monthly payments, then gradually increases every two years. Payments are made monthly for up to ten years for most loans.
• Extended Repayment Plan. In this plan, which nearly all borrowers can adopt, payments standard or graduated payments are made monthly, but at a lower rate over a longer period of time, typically 25 years.
• REPAYE. The Revised Pay As You Earn Repayment Plan is for any Direct Loan borrower. Payments are calculated as 10% of a person’s discretionary income, and monthly payments will be recalculated each year based on family and income.
• IBR. The Income-Based Repayment Plan allows for monthly payments between ten to 15% of a person’s monthly income, but borrows must have a high debt to income ratio to qualify.
• ICR. In the Income-Contingent Repayment Plan, eligible borrowers will make monthly payments based on the lesser value of either 20% of their income, or the “amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income,” according to the Department of Education.
• Income-Sensitive Repayment Plan. This plan is only available under a few federal loan programs. Payments are based on annual income, and the loan will be paid off within 15 years.
Depending on a borrower’s income and the type of loan they took out, they can work with their servicer to determine which student loan repayment plan might be the best course of action. If a borrower doesn’t reach out to their servicer to coordinate a repayment plan before the end of the grace period, they will be on the standard repayment plan by default.
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Start Repaying Student Loans
Once a repayment plan is selected, and the grace period draws to a close, borrowers will begin making payments on their student loans.
Where a borrower will make their payment is dependent upon who their student loan servicer is. Most student loan servicers make it possible for borrowers to make monthly payments online, but it’s best to confirm that with the servicer before payments begin.
Most servicers also have an automatic payments set-up, where monthly payments are automatically debited out of borrowers’ accounts each month. Setting up an automatic payment can help borrowers avoid missing a payment, or rack up late fees.
Additionally, some federal student loans provide a discount when a borrower sets up automatic repayment online. For example, if a borrower has a Direct Loan, their interest rate is reduced by .25% when they choose automatic debit.
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Repaying Private Student Loans
Private student loans are generally repaid directly to the bank or financial institution that issued them. Borrowers can check their statements to see who the loan servicer is. Generally, payments can be made online.
To find out who their loan servicer is, borrowers with federal student loans can call the Federal Student Aid Information Center (FSAIC): 1-800-433-3243 or log into their Federal Student Aid account. Federal student loan borrowers can also check the National Student Loan Data System to find information about their loan servicer.
Borrowers with private student loans will generally make repayments to the financial institution from which they borrowed the loan.