Graduation is Just the Start...Plan Your Student Loan Repayment with Confidence

Graduating from college is a moment to celebrate—but it also marks the beginning of a new financial reality for many students: student loan repayment. For most borrowers who aren't returning to school, federal loans enter repayment six months after graduation—a period known as the grace period. For May graduates, that means payments usually begin in November or December. It's critical to use this time wisely. 

Know Your Loans 

During the grace period, you're not required to make payments, but that doesn't mean your loans are idle. Unsubsidized loans continue to accrue interest, and unless you were making payments during school, your balance may have grown. The grace period acts more like a deferment than true repayment, and interest capitalizes once it ends. 

You can make payments during the grace period—but unless you explicitly ask for your payment to be applied to the principal, it may go toward outstanding interest. One effective strategy is to make a lump-sum payment before repayment begins and apply it to the principal. This can reduce the overall cost of the loan, especially if you're aiming to pay it off quickly.

Set Your Repayment Goal 

Every graduate’s financial picture is different. Some may move back home and focus on paying down loans aggressively. Others might face high rent, credit card debt, or have private loans, and prefer to lower monthly costs with an income-driven repayment (IDR) or extended plan. 

The first step is asking yourself: What is my goal in repaying my student loans? 

If your goal is to pay off your loans as quickly and cheaply as possible, then plans like the Standard 10-Year Plan or making extra principal payments could be the right approach. But this requires a steady income and room in your budget to pay more than the minimum. 

If your goal is to keep payments manageable while you settle into your career, then enrolling in an income-driven repayment plan may help free up cash for rent, transportation, or building an emergency fund. Just keep in mind: while your payment is lower, your loan balance may grow over time, especially if your payment doesn’t cover accruing interest. 

Here’s where long-term planning becomes essential: 

• Forgiveness options exist for IDR plans (typically after 20–25 years), but they require consistent annual income certification and may result in a large amount of forgiveness that could be taxable under current IRS rules (note: this may change with future legislation). 

• If you expect your income to grow significantly, you might pay more over time under IDR than under a fixed plan. 

• Some plans, like Income-Based Repayment (IBR), have eligibility requirements like Partial Financial Hardship (PFH). If you lose PFH status as your income grows, you may be removed from the plan—and if your balance has grown in the meantime, you’ll face a larger loan with fewer options. 

This is why it’s critical not just to focus on the next payment due, but to think 5, 10, even 20 years ahead. Ask yourself: 

• Will I be eligible for loan forgiveness down the road? 

• What happens if my income fluctuates? 

• Is it worth it to make extra payments now, or should I build savings first? 

Graduation is a fresh start—but repayment is a long road. Setting a clear goal now and aligning your plan accordingly will help you avoid common pitfalls and stay confident in your financial path. But you don’t have to figure this out alone — SDS is here to help, log into your account and explore your options today.