Start Student Loan Repayment Off Right From the First Payment

For many recent college graduates, 2014 has been a year of firsts, including their first full-time job, their first time completely living on their own, their first time filing their own taxes and their first student loan payment.

A lot of student loan borrowers find that first bill too overwhelming and put it aside to deal with later, thinking that if it's a week or two late, it's no big deal. But this is totally the wrong mindset. Some might argue that your first student loan payment is the most important one of all.

The Student Loan Ranger has been in the education debt management business for a long time and has worked with thousands of student loan borrowers. And we've found that borrowers who make their first student loan payment are much less likely to default than those who miss their first payment.

[Watch out for four warning signs of student loan default.]

Based on the borrowers we tracked who defaulted within 20 years of starting repayment, close to a quarter of them never made their first payment.

Part of the reason for this is that once borrowers miss their first payment, they begin to receive delinquency notices, and the anxiety gets even more overpowering.

Fortunately, you can do the following to avoid those feelings and make your first payment -- and each one thereafter -- on time.

-- Make it a habit: Of the borrowers we track, those who make their first 24 payments on time usually avoid default, likely because these consumers have created a habit of making their student loan payments.

The habit premise is so well-known that some lenders will offer incentives to keep you on track. For instance, some will reduce your interest rate if you make your first two or three years of payments on time. If you miss that first payment, though, that potential benefit is gone forever.

You can give yourself some extra insurance by signing up for automatic payments, through either your own bank or your loan holder. Some lenders and servicers, including those who hold federal direct loans, offer a small interest rate discount if you sign up for automatic payments. Talk to your loan holder to see if they offer these or other repayment benefits.

[Learn to understand the pieces of your student loan payment.]

-- Create a budget: Being ready for that first student loan payment is probably also the result of making a budget -- something most financially successful people do on a regular basis. Hopefully, you knew about your student loan payment amount over the summer and sat down to fit it into you budget.

Look at that projected payment and determine whether it is affordable with your current income and living expenses. If it isn't, see if you could cut some expenses. If you can't, apply for a lower payment option.

It's a great idea to go through this exercise annually to both identify budget items that can creep up on you, like eating out and other small expenses, and to ensure you're meeting all your financial goals. Don't forget to leave money to build up your emergency and retirement funds.

[Take the Quiz: How Much Do You Know About Student Loan Repayment?]

-- Get ahead of your payments: If you want to really get ahead, start making your monthly payments before the first payment is due. Unless you were among the lucky students who were able to pay for school using only subsidized Stafford or Perkins loans, interest has been accruing since the day of disbursement.

If the interest is not paid by the time the grace period is over, it will be capitalized, or added to the principal. This means you will be getting charged interest off of interest. Making payments during the grace period will reduce or eliminate the amount of accrued interest that will be capitalized, saving you money in the long run.

Making your first student loan payment is probably not as exciting as when you took your first step, But making that first payment will bring you one step closer to your last payment -- something that is pretty exciting. Ensuring that first student loan payment is made on time and with some preplanning will also help you get to that last payment a little faster.

Betsy Mayotte, director of regulatory compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, is a frequent contributor to ASA's SALT Blog; responds to public inquiries via the advice resource "Just Ask;" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.