Here’s what new college graduates should understand about their federal student loan repayments.

College graduates who have just received their diplomas might be anxious about the impending start of their federal student loan repayments.

Each year, around 2 million people in the U.S. earn a bachelor’s degree, according to higher education expert Mark Kantrowitz. About 60%, or 1.2 million of those graduates, also incur student debt, he noted.

Here are some key points for new graduates about their upcoming loan payments:

Loan Payment Grace Period

Typically, graduates won’t need to start repaying their student loans until six months after graduation, due to a federal grace period, Kantrowitz explained. For those with federal Perkins Loans, the grace period can extend up to nine months, he added.

For subsidized loans, the government covers the interest during this grace period. However, interest will accumulate on unsubsidized loans.

Kantrowitz mentioned that some borrowers might miss their first payment after the grace period. To prevent this, he suggests setting a reminder for about two weeks before repayment begins.

Enrolling in automatic payments with the loan servicer can also be beneficial. It can slightly lower the interest rate and ensure payments are made on time. However, verify that the monthly bill calculated by the lender is correct before setting up automatic payments.

Options for Concerned Borrowers

“The best way to reduce stress about student debt is to educate yourself on how the loans work,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit aiding borrowers with repayment strategies.

The federal government offers various options for those concerned about affording their payments. Income-driven repayment (IDR) plans, for example, limit monthly payments to a portion of discretionary income.

Recently, the Biden administration introduced a new IDR plan called the Saving on a Valuable Education (SAVE) plan, which requires borrowers to pay only 5% of their earnings after certain expenses.

To estimate monthly payments under different plans, borrowers can use calculators available at Studentaid.gov or FreeStudentLoanAdvice.org.

“Borrowers should opt for the highest monthly payment they can manage,” Kantrowitz advised. “This will help pay off the debt quicker and reduce the total interest over the loan’s duration.”

For those needing to extend their grace period, there are deferments and forbearances available, including options for the unemployed or those in eligible graduate school fellowships. However, be aware that interest may accrue during these breaks, leading to larger future payments.

Mayotte also suggests that borrowers look into eligibility for forgiveness programs. The Institute of Student Loan Advisors’ website, FreeStudentLoanAdvice.org, provides a database of such opportunities, she said.