How new borrowers can prepare for their first student loan payment

Roughly 7 million federal student loan borrowers are new enough to the system that they have never had to make a payment on their loans. That changes in October, when loan payments come due after a years-long pandemic pause, and these brand new borrowers take the first steps of a long journey toward paying off their debt.

Those first steps can feel intimidating – but we're here to help. Here's what new borrowers should know in the lead up to October:

The student loan portal is your friend.

It's time to get acquainted with it! Go to the U.S. government's loan portal. You'll need your FSA ID to access your account. If you don't have one, or don't remember it, it could take some time. So don't delay.

Once you're logged in, make sure your contact information is up to date. If anything has changed, the U.S. Education Department and your loan servicer need to know.

Speaking of servicers, while you're there, you can find out who your servicer is (just go to the "My Loan Servicers" section). That's important because, next, you'll need to go to your servicer's website and add or update your contact information there, too. Redundant? Perhaps, but you need to do it. If they can't find you, they can't bill you – but that won't keep your loans from ballooning with interest. Here's a list of the current federal student loan servicers:

Aidvantage (1-800-722-1300)

ECSI (1-866-313-3797)

Edfinancial (1-855-337-6884)

MOHELA (1-888-866-4352)

Nelnet (1-888-486-4722)

Remember to save your password and FSA ID somewhere safe – moving forward, you should make a habit of checking in on your loans every month or two.

And if you can't figure out how to log into the government's portal, you can always call for help: 1-800-4-FED-AID (1-800-433-3243).

There's a tool for finding the repayment plan that makes sense for you.

The kind folks at the Department of Education's office of Federal Student Aid have built a handy loan simulator that will ask you all sorts of life questions, like whether you're currently employed, or paying for health insurance, or married (with children). It'll ask you where you went to school, how much debt you have and how much income you're earning.

And then it will let you choose your plan based on your repayment goals. Do you want to pay as little money as possible in the long-run or focus for now on keeping your monthly payments as low as possible? That's the key question you'll need to answer for yourself.

For the long-run savers, the traditional, "standard" 10-year plan is almost certainly your best bet. You'll have larger, fixed payments right out of the gate – but that also means you'll end up paying the least amount of interest over time compared to other, more stretched-out plans.

If you're a young earner and want/need a low monthly payment, great. The Biden administration's new income-driven repayment plan, known as the SAVE plan, might be a good fit, especially if your debts all come from undergraduate student loans.

But be warned! Procrastination could cost you. If you put off choosing a plan for yourself, the system will choose (and in some cases has already chosen) for you – the standard plan, which could come as a shock to your finances.

Loan forgiveness is still a thing.

President Biden's big loan relief plan was struck down by the U.S. Supreme Court, but there are other loan forgiveness options that are very real and plentiful.

Like Public Service Loan Forgiveness, which promises that if you work for 10 years in public service (in government or for a qualified nonprofit) while making 120 qualifying payments, your remaining balance will be forgiven. If this rings your bell, you should consider the new SAVE plan. There's no point paying hefty monthly sums upfront, through the standard 10-year plan, if you think you will qualify for forgiveness in 10 years anyway.

Income-driven repayment plans, like SAVE, also come with different levels of forgiveness. Typically, it's 25 years for graduate school debt and 20 years for undergraduate debt. The new SAVE plan will also include a new tier of forgiveness for low-debt borrowers: Folks who take out $12,000 or less can qualify for forgiveness after 10 years, though that part of the plan won't go into effect until July 2024.

Enrolling in auto pay can lower your interest rate.

If you tend to pay your bills at the last minute and have been known to miss a deadline or two, consider enrolling in auto pay. You'll even get a 0.25% cut on your interest rate.

The "on-ramp period" will seriously slow you down.

You might've heard President Biden or Education Secretary Miguel Cardona trumpet something the administration is calling an "on-ramp period" for borrowers. It lasts a year, from now through Sept. 30, 2024, and it basically means borrowers who can't or choose not to make their monthly payments won't have the delinquency reported to credit agencies.

It seems nice, right? Patience baked into policy. But here's the problem: Loan interest will continue to accrue regardless of whether you make your payments. Even if you genuinely can't afford repayment, you have better options than this on-ramp. For one, it's possible – perhaps likely – that you could qualify for a low monthly payment, as low as $0, on the SAVE plan, which also cancels whatever interest is not covered by your monthly payment.

Avoid default.

In normal times, if a borrower goes 270 days without a payment, they'll go into what's called default. Default destroys a borrower's credit and allows the government to dip into your wages, tax refund and Social Security. In short, the government's likely going to get its money the easy way, or the hard way. Try the easy way first.

If you can't afford a monthly payment right now, that's fine – again, check out the SAVE plan. You may qualify for a $0 payment. You can also call your loan servicer and request a temporary forbearance or deferment – not as good as being on a repayment plan but preferable to default.

Don't wait to call your loan servicer.

The companies the government pays to answer student loan questions are struggling as borrowers flood their phone lines. In normal times, these servicers help several million borrowers a year move into repayment. Right now they need to help tens of millions — and do it with less money than usual. The more you can do online on your own, the better off you'll be. [Copyright 2023 NPR]