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Nearly Half of Student Loan Borrowers Aren't Prepared for Their Monthly Payments

By Maurie Backman – Updated Feb 5, 2020 at 4:35PM

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Being in the dark about your student loan payments could hurt your finances early on.

Plenty of people take out student loans in order to afford college. And the good news in this regard is that 75% of borrowers describe the student loan approval process as either "very easy" or "easy," according to a survey released earlier this year by LendKey Technologies.

The problem? A frightening 49% didn't know what their monthly loan payments would look like after taking on that debt. In fact, only 10% of the 18-to-34-year-olds surveyed were able to nail down their precise repayment amount. 

If you've taken out loans for college, it's imperative that you figure out what sort of monthly payment you're signing up for. Otherwise, you might really start off on rocky financial footing once you graduate.

Four college students studying on a lawn in front of a campus building.

Image source: Getty Images

Determining your monthly loan payment

Your monthly student loan payment is essentially a function of the amount you borrow, the length of your repayment period, and the interest rate attached to your loan. Once you have that information, you can use an online loan calculator to determine in advance what your loan payment will look like.

Things get tricky, however, when you have a variable interest rate attached to your loan. Federal loans, which are issued by the U.S. Department of Education, come with fixed interest rates, and so the rate you start out paying will be the rate you continue paying for rest of the life of your loan (assuming you don't refinance). Private loans, on the other hand, come with variable rates, which means you might start out with 7% interest during your first year of payments, but end up paying 12% interest years later. Still, you can estimate your monthly loan payments initially, and look into refinancing to a new loan with a fixed interest rate after you graduate to lock in a more steady stream of monthly payments.

Don't want to mess around with online calculators? Call your loan servicer and ask what your monthly payment will look like. While you're at it, find out exactly when your first payment will be due. Federal loans, for example, typically come with a grace period so that you're not forced to pay them back while you're in school, or even immediately upon graduation. Private loan repayment terms can differ from one lender to the next, so be sure to understand what you've signed up for. 

Budgeting for your loan payments

Once you determine what your monthly student loan payments will look like, you'll need to set up a budget to ensure that you're able to keep up with them. Your budget should include your various recurring monthly expenses, as well as annual expenses that you also need to account for.

If you fear you won't be able to make your monthly loan payments based on your income and other unavoidable expenses, you'll need to contact your lender and see about changing your repayment terms. If you took out federal loans, you can apply for an income-driven repayment plan, for which your monthly payments will be calculated as a percentage of your income. If you borrowed privately, you can reach out to your lender, explain your hardship, and ask for a lower monthly payment. Or you can try to refinance your student debt for a lower interest rate and monthly payment. 

Falling behind on your student loans can damage your credit and lead to other undesirable consequences. If you're borrowing money for college, make sure you know what your monthly loan payments will look like well before you have to start making them. That way, you can plan and budget accordingly.

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