First Person: Budgeting for Student Loan Repayment After Graduation

As happy as I was to be finished with school, the excitement of graduating was dampened a bit by the knowledge that I’d soon be making hefty payments toward my student loans. While going to school was unquestionably worth it, paying back the money I borrowed took some careful planning and preparation. Here’s how I went about transitioning from my “going to school” budget to paying down my student loan balance.

Planning Ahead

Before I borrowed a cent, I did my homework and looked into different types of loans and the repayment options they offered. I opted for a Federal Direct Loan, knowing that I’d have a six-month grace period after graduation before I’d have to start repayment. Since Direct Loans are funded by the government, the interest rates are fixed and very low, and borrowers can choose from a number of different repayment schedules and options. As I got close to graduation, I started adjusting my budget and making “fake loan payments” into my savings account, in preparation for writing the actual checks.

Preparing to Pay

Presumably, the six months of deferred payments are designed to give graduates a chance to find a job and start making money before going into repayment status. Though I already had a job, that “cushion” of time gave me the chance to go over my budget and prepare to pay; most importantly, it allowed my post-graduation raise to go through with my employer, so the extra money in my paycheck helped to offset the new loan payment expense. During the “in between” time when I had my raise but wasn’t yet paying, I never let myself spend or get used to that money; it went straight into the savings account, along with the money I’d been saving in preparation.

Choosing How to Pay

One thing I considered carefully was how to set up payments. I had the option to pay one set amount each month for the duration of the loan, or I could opt for the “graduated” system, with the payment amounts increasing incrementally over the years. I also have the ability to request partial or full forbearances, which can change the amount of my payment — or suspend it entirely — for a fixed length of time. I opted for the fixed monthly payments, because I didn’t want to become accustomed to paying less than I’d have to down the road; as long as I can stand to make the payment, I want to fork over the money and get rid of the debt.

Starting Repayment

Since my interest was deferred until I began paying, I scraped together all the money I could to make a huge first-time payment. Because 100% of the initial payment went toward the principal of the loan, every cent paid reduced the interest I’ll pay for the life of the loan. Since then, I’ve consistently made payments, including some extra ones here and there. When I relocated and switched jobs, I was able to get a six-month forbearance (though I paid the interest to keep it from compounding) while I situated myself in my new home.