Two years ago, federal student loan borrowers enjoyed the lowest interest rates ever on their loans. This fall, rates for undergraduate borrowers will be nearly double what they were in 2020-21.

The interest rates for new undergraduate direct federal student loans are set to increase to 4.99% for the 2022-23 academic year, up from 3.73% last year and 2.75% in 2020-21. The interest rates on graduate direct loans are also set to increase to 6.54%; parent and grad PLUS loans will rise to 7.54%.

Since the new interest rates go into effect beginning July 1, any new loans taken out before then will carry the interest rates from the 2021-22 academic year.

	2021-22 interest rates	2022-23 interest rates
Undergraduate direct loan	3.73%.	4.99%.
Graduate direct loan	5.28%.	6.54%.
PLUS loan	6.28%.	7.54%.

Rising rates make college more expensive

Higher interest rates mean paying off loans will be more costly. For a dependent first-year undergraduate student, a $5,500 loan — the maximum this student could borrow — will cost $6,997 over the standard 10-year repayment term with an interest rate of 4.99%. At the 2020-21 rate of 2.75%, this loan would cost $6,297.

Those taking on graduate direct and PLUS loans will see the cost of borrowing swell even more. On top of higher interest rates, PLUS loans carry an origination fee of 4.23% and don’t have any borrowing limits.

According to the Hechinger Report, a nonprofit focused on education issues, the average PLUS loan in 2019 was around $14,000. That loan amount, taken on with the standard 10-year term and next year’s interest rate of 7.54%, will cost $19,977 over the life of the loan, including $5,977 in interest.

Interest rates for federal student loans are set by the Treasury Department’s May auction of 10-year notes. The interest rate on the May 10-year notes, 2.94%, is added to margins set by Congress, and those margins differ between types of federal student loans.

For undergraduate direct loans, 2.05 percentage points are added to the interest rate; graduate student loans have 3.6 points added and 4.6 points for PLUS loans.

Submit the FAFSA and consider the payoff

Increases to the federal student loan interest rates make it even more important to consider the payoff of college and whether any debt you take on is worth it.

Nonetheless, even with increased interest rates, federal student loans are the best option to finance your education if you need loans. Submit the Free Application for Federal Student Aid, or FAFSA, to be eligible for federal, state and school-based aid.

Submitting the FAFSA also allows you to be considered for grants and other aid you don’t have to repay, such as the Pell Grant. Once you’ve taken advantage of any aid you don’t have to repay, exhaust all of the federal student loans offered to you before opting for private student loans. Federal student loans offer more borrower protections.

The payoff of attending college will vary based on your major, the cost of attendance and the amount of debt that you have to take on to finance your education. If the payoff isn’t clear for you, consider alternatives to college or starting at a community college before transferring to a four-year school to attain your bachelor’s degree.

The article Interest Rates on New Federal Student Loans Going Up for 2022-23 originally appeared on NerdWallet.

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Federal student loan borrowers just got an extra four months before their payments resume.

If that feels like déjà vu, it’s because this is the sixth extension of the interest-free payment pause that went into effect in March 2020 under the Trump administration, at the onset of the COVID-19 pandemic. Payments had been scheduled to restart beginning May 2.

This latest extension, through Aug. 31, will put the total number of months without payments at 30. Nearly 37 million of the nation’s federal student loan borrowers haven’t had to make payments during the pause, saving them a collective $195 billion in waived payments, according to a March report from the New York Federal Reserve.

They’ve used the wiggle room in their budgets to handle essentials like food, rent and child care. Some have managed to tackle larger financial goals, like paying down credit card debt or saving up for emergencies. Some even kept paying each month.

For months, Department of Education officials have expressed concern about whether the majority of borrowers could handle payments after more than two years without them, according to a recent Government Accountability Office report.

On Wednesday, the White House said borrowers still aren’t ready. And it offered up a huge win for 5 million borrowers with loans in default: an automatic return to good standing. Borrowers in default have long faced wage garnishment, damage to their credit and substantial collections fees. Debtors have had the option to pursue rehabilitation during the pause; now it’s automatic.

It’s unclear if borrowers will be more able to cope with payments come September. At the very least, the additional reprieve provides borrowers with more time to plan.

But plan for what, exactly?

Is there an end game?

Forgive student debtors for being doubtful: The government labeled last August’s extension as “final,” but that has been followed by several more.

Employment is back to near pre-pandemic levels, COVID-19 cases are dropping and other pandemic-related relief has expired. But the Biden administration, in a White House news release, said Federal Reserve data predicted a rise in late payments and defaults if payments resumed.

Some experts are skeptical.

“This feels much more driven by politics than by public health,” says Robert Kelchen, professor and head of the department of educational leadership and policy studies at the University of Tennessee at Knoxville.

Kelchen says he thinks an additional extension this year could be likely. He also raised the question of whether the Biden administration will ever resume payments. “They’re not going to resume at the end of August to make voters repay right before the midterms,” Kelchen says. “And then, at that point, the re-election campaign starts.”

Kelchen isn’t the only one who sees the move as largely political. Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says any extension will benefit borrowers, but four months might be more palatable to voters during the midterm election, whether they support or oppose extending the payment pause.

“If they had [extended] it through the end of the year, some people might take that as, ‘he only did it to get through midterms,’” Mayotte says.

Too much? Not enough?

Extending the payment restart raises the stakes for the Biden administration to make a decision on debt cancellation, says Mike Pierce, executive director of the Student Borrower Protection Center advocacy group. “I think this is the clearest sign yet that big things are coming,” he adds.

The extension “does not make sense if you decouple it from the broader conversation around student debt cancellation and student loan reform,” says Pierce, adding that the timing of the extension’s expiration does tee up the possibility of debt cancellation weeks before voters head for the polls.

The Biden administration has repeatedly said the president would support cancellation via congressional action despite calls from Democrats in Congress, along with student borrower advocates, state attorneys general and one former Secretary of Education, to do so via executive action. Biden has questioned his unilateral ability to do so.

The amount of cancellation, if any, has also been a tug-of-war. While on the campaign trail, Biden pledged to sign off on canceling $10,000 in debt per borrower, a promise he has distanced himself from since becoming president. Some Democratic lawmakers like Sens. Chuck Schumer of New York and Elizabeth Warren of Massachusetts have called for Biden to cancel $50,000 in debt.

While broad student debt cancellation has not come to pass, more than 700,000 borrowers have seen $17 billion in loan debt forgiven via a revamped Public Service Loan Forgiveness program and other existing forgiveness programs.

Is it time to get back to normal?

Republican lawmakers, meanwhile, have criticized both the extension and their Democratic colleagues’ calls to cancel student debt. Rep. Virginia Foxx of North Carolina, who sits on the House Education Committee, called the pause extension “outrageous,” while two others, Reps. Jim Banks of Indiana and Bob Good of Virginia, had previously introduced a bill to block another extension.

Leaders in the private student lending industry are also against extending the pause since their business has taken a two-year hit from federal borrowers who chose to stick with the pause rather than refinance privately. SoFi CEO Anthony Noto wrote in a March 17 blog post that extending the pause was “at best fiscally irresponsible” and “takes from struggling families and gives to the affluent, and at worst it’s political theater.”

Student loan servicers are unlikely to be more ready to resume processing payments or offering guidance to borrowers in September than May, says Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents servicers. These private companies are contracted by the government to manage federal student loans.

Buchanan adds, “In fact, we may be less ready just because you’ve burned through a bunch of resources to get ready and now all of those are wasted.”

Who needs a plan? Borrowers

Buchanan says he’s concerned that a further delay means borrowers won’t take the restart seriously. “They’ll ignore it until they get a delinquency notice,” he says. “The more we push this out and do it at the last minute, the worse our problems become.”

What leaders from both sides of the aisle, the private lending industry and student borrower advocacy groups all seem to agree on is that the pause doesn’t fix the core issue: The student lending system is broken. And, as Pierce says, a four-month extension isn’t much time to implement meaningful reform.

Four months does give borrowers more time to, at a minimum, make a plan for payment to restart. Whenever that is.

The article Student Loan Pause Extended Again — Is There an End Game? originally appeared on NerdWallet.

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Two years after the chaos of the pandemic prompted Congress to pause federal student loan payments, new data show many borrowers have used that extra room in the budget to shore up their overall finances. Some have inched closer to eligibility for student loan forgiveness.

Economists and lending experts say it’s unclear how long that stability will last when the payment pause ends, currently scheduled for May 1. Among the 26.6 million people expected to enter repayment at once, some will inevitably struggle, including unemployed borrowers and those whose wages have not kept up with rising inflation.

Evan White, executive director of the California Policy Lab at the University of California, Berkeley, says to expect an increase in delinquencies and eventually defaults when student loan repayment resumes. That echoes recent projections from a March 2022 New York Federal Reserve report and a January 2022 report from the Government Accountability Office.

Pandemic-related supports like stimulus checks and the payment pause could have been propping people up in a way that makes them look like they’re doing much better than they are, White says. “Or it may be that all of those supports build people up to a better place in a way that will have some sustainability.”

All borrowers can make a plan to manage upcoming payments by reaching out to their servicers, the companies contracted to manage federal loans. If you are at all uncertain of your ability to resume payment, an income-driven repayment plan is your best option.

Here’s how the federal student loan payment pause has affected borrowers.

Overall finances improved

A lot can happen to your finances in two years, but the pause was objectively good for federal direct student loan borrowers in several ways:

• Borrowers, on average, experienced $210 of monthly breathing room. Since the start of the payment pause, 37 million borrowers have collectively saved an estimated $195 billion in waived payments, according to the March report from the New York Federal Reserve. Each month, borrowers saved around $210 on average, according to California Policy Lab.
• Balances didn’t grow. No interest accrued during the pause, which means borrowers’ balances did not increase.
• Borrowers reduced other debt. About 44% of borrowers reduced the amount of debt on their credit cards and 6% of borrowers increased payments on other loans, like an auto or mortgage loan, California Policy Lab found. White says, however, that it’s more difficult to draw a direct line to the pause being the cause of these changes.
• Credit scores increased. “The people that saw the biggest boost to their credit are not the doctors and lawyers, it is the people who are struggling that are now the beneficiaries of this extraordinary public policy,” says Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group. Borrowers across the board saw credit score increases, with the most gains among those with the lowest scores and those with a recent delinquency, according to California Policy Lab.

Some borrowers are closer to forgiveness

Every month of the pause could count toward the total borrowers need to become eligible for loan discharge through existing programs.

For public service workers, each nonpayment month has counted toward the 120 payments needed for forgiveness through the Public Service Loan Forgiveness program. To qualify, borrowers had to be working full time for a public service employer during the pause.

Borrowers on income-driven repayment plans — aimed at keeping monthly payments manageable — also can count each nonpayment month toward the 240 or 300 months needed for loan discharge.

A borrower enrolled in these forgiveness programs since the pause began in March 2020 has been credited with at least 24 payments toward their goal. The same is not true for borrowers in more traditional repayment plans.

Borrowers who kept repaying took advantage of 0% rates

Zero percent interest meant borrowers who could afford to make payments could potentially lower their debt faster, but they had to do so by voluntarily contacting their servicers. The New York Federal Reserve report says over 18% of borrowers with direct loans continued making payments.

Among those who made payments were borrowers with a history of actively paying down their balances before the pandemic, as opposed to those whose balances were increasing due to accruing interest.

A fraction of borrowers in default grabbed opportunity

The payment pause offered defaulted student loan borrowers a rare opportunity to get their loans back in good standing — removing the default from credit reports — without having to make a single payment to do so.

Student loan rehabilitation stipulates borrowers must make nine payments at an agreed-upon amount out of 10 possible months. Months spent in forbearance count.

Data from the Education Department show some borrowers did take advantage of that: A total of 602,000 borrowers rehabilitated their loans in 2020 and 2021. But this is likely a drop in the bucket. Department data show that at the end of the first quarter of 2020, 5.7 million borrowers were in default; by the end of 2021, it was 5.1 million.

Even more disheartening, 25% of borrowers in default do not have an email on record with the Education Department, the Government Accountability Office report found. It remains unclear how those borrowers would be reached before collections resume six months after the pause lifts.

Borrowers with private loans missed out

Not all student loan borrowers saw their finances improve as a result of the pause, including private loan borrowers and Family Federal Education Loan program borrowers with commercially held loans.

Most FFEL borrowers whose loans are privately held were not placed in any forbearance and struggled with payments, according to the March New York Federal Reserve report. Some FFEL borrowers whose loans were placed in forbearance saw delinquency rates increase after the end of those periods. And FFEL borrowers also experienced 33% higher delinquency on other non-loan-related debts after forbearance ended.

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says most FFEL borrowers didn’t realize the payment pause didn’t apply to them until delinquencies hit their credit report. “I still, today, get people saying, ‘Why am I getting a bill?’” Mayotte says.

Private loan borrowers did not see their loans paused, but they also didn’t experience significant delinquency increases since the start of the pandemic, according to data from Measure One, a data and analytics firm.

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Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article How the Student Loan Pause Has Played Out for Borrowers originally appeared on NerdWallet.

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The Biden administration just hit the snooze button again on the restart of student loan payments.

Now, millions of federal student loan borrowers have 90 extra days to figure out how to pay a bill they’ve gone nearly two years without.

“We are really relieved that the president changed course and that student loan borrowers don’t have to spend the holidays worried about how to make ends meet because of an unforced decision to send them student loan bills,” says Mike Pierce, executive director and co-founder of the Student Borrower Protection Center, a nonprofit advocacy organization.

Payments were supposed to restart beginning Feb. 1.

The interest-free pause has been in effect since March 13, 2020, the onset of the COVID-19 pandemic. It allowed federal student loan borrowers with an amassed $1.61 trillion in debt to prioritize other financial needs like paying rent or padding emergency savings.

Payments now restart beginning May 2. Borrowers should use the additional time to ensure they have a plan to resume payments or arrange a payment plan they can afford.

What led to the extension?

The pause has been extended four times. If payments restart in May, borrowers will have had a total of 25 payment-free months.

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a nonprofit student loan help organization, welcomed news of another extension but worries about the potential to create a “cry wolf” phenomenon.

“[It] makes me worry a bit about when the repayment does start: Will folks be less likely to be prepared?” says Mayotte.

Notably, the Dec. 22 announcement from the Department of Education did not use the word “final” with this extension, as it did in August.

In the past few weeks, a long-standing campaign to deal with student debt won new urgency as the omicron coronavirus variant emerged and inflation surged. Survey after survey found many borrowers worried about their ability to pay.

“I think the pressure from advocates, borrowers, lawmakers and bipartisan voters was too overwhelming to ignore; I think that speaks to the severity of the crisis,” says Braxton Brewington, press secretary for the Debt Collective.

The added time offers borrowers another chance to make a plan for their loans. Barring further extension or en masse forgiveness, borrowers have the following options available.

Step 1: Call your servicer

Notifications about the restart had been hitting borrowers’ inboxes for weeks before the announcement.

Student loan servicers, the private companies that manage student loans, were in the midst of hiring and training staff in preparation, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance.

The newest extension surprised servicers, Buchanan said, but they still face a big challenge even with the extra time: Getting their customer service workers up to date on a complicated student loan repayment system and providing accurate help to millions of people.

Borrowers can beat the rush. You’re likely to face high call volumes and long wait times with servicers closer to the start date.

Before payments restart, find out who your servicer is. Log in to the federal student aid site, contact your servicer about your options and compare any information you receive to the federal student aid site.

Your servicer can help you with any of the options below.

If you need a lower payment

If you expect to have trouble making payments due to your income, consider an income-driven repayment plan. These plans cap your payment at a portion of your income and extend your repayment term; at the end of that period your debt is forgiven. If you have zero income, your monthly payment amount will also be zero.

Temporarily, through July 31, you can self-certify your income, which means you won’t have to file the income-driven repayment plan paperwork usually needed to confirm your income until you recertify. Those already enrolled prior to the pause will need to recertify beginning in August 2022. But if your income is lower now than it was before the pause, recertify as soon as possible. It’s unclear if the pause will extend these temporary provisions.

If you want to keep paying

You can continue paying down your student loans, but you’ll have to contact your servicer to submit payment.

Mayotte says the extension will especially benefit those who take advantage of the 0% interest rate to pay down their loans or other debt.

If you expect you’ll need an additional break

You can apply for an additional pause if you need it: an unemployment deferment for up to 36 months or a hardship forbearance for up to 12 months at a time. But unlike the current pause, interest will accrue and be added to the total you owe when you do start paying again.

If your loans are in default

If your loans were in default prior to the payment pause, getting back into good standing immediately will require you to pay your entire student loan amount, in full, which is unrealistic for most borrowers.

A more practical plan is student loan rehabilitation, which requires making nine consecutive monthly loan payments in 10 months equaling 15% of your discretionary income, then entering into an income-driven repayment plan. If you start loan rehabilitation now, which you can do during the pause, you’ll be that much closer to being back in good standing.

If you think you might miss future payments

When you miss enough payments — 270 days — your loan goes into default, resulting in negative effects including collection activities and damaged credit.

To avoid this outcome, enroll in a repayment plan that’s affordable for you, and sign up for autopay so you never miss a payment. If you were enrolled in autopay prior to the payment pause, you must reaffirm you would like to reenter into autopay. As a bonus, autopay will save you 0.25 of a percentage point on your interest.

If you’re waiting on loan forgiveness

Student debt advocates like Pierce and Brewington say they welcome the pause but are hoping widespread forgiveness is on the way.

“This is a major win, but there’s so much to go from here,” says Brewington. “We need full cancellation. Our economy, families and communities need full cancellation.”

Biden has not committed to broadly forgiving student debt via executive order; he indicates he would sign any legislation that passes through Congress. Right now, there’s nothing imminent.

Targeted debt relief worth $13 billion via existing forgiveness programs has reached more than 640,000 borrowers, the White House says.

For those seeking Public Service Loan Forgiveness, the additional three months of nonpayment will count toward the 120 needed for forgiveness so long as you’re still working full time for an eligible employer.

The article Student Loan Pause is Extended, With Payments Resuming May 2 originally appeared on NerdWallet.

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In more than one-third of U.S. families, parents decide how to pay for college, according to a July 2020 report from private lender Sallie Mae.

Half of those parents don’t inform the child of their decision.

Joe Allen, 51, of Frederick, Maryland, did talk about college costs with his daughter, a freshman at the University of Dayton in Ohio. But he understands why some families avoid the topic.

“As a parent, you want to protect your children,” Allen says. “You want to do what’s best for them.”

But what seems best for children may be bad for mom or dad — especially if it means taking out hefty parent student loans without discussing them. Here’s how to avoid that misstep and others when borrowing parent loans.

Assess your situation

Students should exhaust free money and federal loans in their names to pay for college. Parents can then cover the remaining costs with federal parent PLUS loans or private loans.

But first, review your current financial situation with your child.

“Have a realistic sit-down with yourself and your family in terms of what (your) finances look like and what’s the best decision for you,” says Rick Castellano, spokesperson for Sallie Mae.

Don’t borrow parent student loans if they’ll put your retirement at risk, you’re deep in debt or you can’t afford the payments. For example, the nonprofit Trellis Company surveyed more than 59,000 parents whose children attended school in Texas and found that most said they struggled with loan repayment at some point.

Have a conversation

Kathleen Burns Kingsbury, a wealth psychology expert and host of the Breaking Money Silence podcast, says talking about big expenses like college tuition can make people uncomfortable and emotional.

That doesn’t mean you should avoid the conversation.

“It’s OK if people get upset,” Kingsbury says. “The pitfall is if people get upset and don’t get back to it.”

Instead, use this opportunity to talk about how much you’ll borrow and to teach your child how to analyze the value of a large purchase.

Allen says he went through a sample budget with his daughter to illustrate the cost of her loans and how they might limit her flexibility in the future.

He liked that the exercise made things more concrete than “just saying don’t take out debt.”

Figure out who’s responsible

A conversation is also necessary to determine who’ll repay the parent’s loans.

If your child will — and 45% of families expect the parent and child to at least share this responsibility, according to the Sallie Mae report — that can affect your decisions.

Angela Colatriano, chief marketing officer for College Ave Student Loans, says some families want the child’s name on the loan because he or she will repay it.

“They don’t want a handshake agreement,” she says.

But only the parent is legally responsible for a parent PLUS loan. You’ll need to weigh that when considering borrowing options.

PLUS loans have less stringent credit requirements than private loans and offer everyone the same fixed interest rate. However, PLUS loans also have large origination fees and are available only to parents — guardians and grandparents aren’t eligible, for example.

Your ultimate goal should be getting the least expensive loan you qualify for. If that’s a PLUS loan, make sure everyone is on the same page for repayment.

Kingsbury suggests writing a simple, one-page agreement that “would spell out what the expectation is and what happens if there’s a conflict.”

Consider co-signing

Parents who prefer private loans can borrow in their name or co-sign with their child. Either option means you’ll be responsible for the loan.

“It comes down to a family decision,” Castellano says. “Families should explore both options.”

But he says that co-signing can benefit students in ways that borrowing on your own can’t, such as helping them build credit.

Also, because a co-signed loan has two applicants, you may get a better interest rate. However, lender underwriting policies differ.

For example, Allen initially got a much higher rate on a co-signed loan than he expected. The lender told him that was because it combined his credit score with his daughter’s.

“I didn’t understand that,” Allen says. “I thought if I’m co-signing and bringing good credit to the equation it should be a better rate.”

He applied with a different lender and got what he called a “much better” rate. Allen plans to take out that loan once his family can no longer fund the education on their own.

This article was written by NerdWallet and was originally published by The Associated Press.

The article Don’t Skip These Steps When Borrowing Parent Student Loans originally appeared on NerdWallet.

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The summer before your freshman year in college means choosing classes, checking out your future roommate’s Instagram and figuring out how you’re going to pay the bills.

Chances are you will need a loan: 2 out of 3 students have debt when they leave school, according to 2017 graduate data from the Institute for College Access and Success. But consider a loan after you’ve accepted grants, scholarships and work-study. You can get these by submitting the Free Application for Federal Student Aid, or FAFSA.

Here are six things you need to know about getting your first student loan.

1. Opt for federal loans before private ones

There are two main loan types: federal and private. Get federal loans first by completing the FAFSA. They’re preferable because you don’t need credit history to qualify, and federal loans have income-driven repayment plans and forgiveness that private loans don’t.

You may be offered two types of federal loans: unsubsidized and subsidized. Subsidized loans — for students with financial need — don’t build interest while you’re in school. Unsubsidized loans do.

Take a private loan only after maxing out federal aid.

2. Borrow only what you need — and can reasonably repay

Undergraduate students can borrow up to $12,500 annually and $57,500 total in federal student loans. Private loan borrowers are limited to the cost of attendance — tuition, fees, room, board, books, transportation and personal expenses — minus financial aid that you don’t have to pay back.

Aim to borrow an amount that will keep your payments at around 10% of your projected after-tax monthly income. If you expect to earn an annual salary of $50,000, your student loan payments shouldn’t be over $279 a month, which means you can borrow about $26,000 at current rates.

To find future earnings, look up average salaries in the U.S. Department of Labor’s Occupation Outlook Handbook. Then, use a student loan affordability calculator to estimate payments.

Your school should provide instruction on accepting and rejecting financial aid in your award letter. If you’re not sure how to do it, contact your financial aid office.

“We’re not scary people,” says Jill Rayner, director of financial aid at the University of North Georgia in Dahlonega, Georgia. “We really do want students and families to come in and talk with us so we can help strategize with them.”

3. You’ll pay fees and interest on the loan

You’re going to owe more than the amount you borrowed due to loan fees and interest.

Federal loans all require that you pay a loan fee, or a percentage of the total loan amount. The current loan fee for direct student loans for undergraduates is 1.062%.

You’ll also pay interest that accrues daily on your loan and will be added to the total amount you owe when repayment begins. Federal undergraduate loans currently have a 5.05% fixed rate, but it changes each year. Private lenders will use your or your co-signer’s credit history to determine your rate.

4. After you agree to the loan, your school will handle the rest

Your loan will be paid out to the school after you sign a master promissory note agreeing to repay.

“All the money is going to be sent through and processed through the financial aid office — whether it’s a federal loan or a private loan — and applied to the student’s account,” says Joseph Cooper, director of the Student Financial Services Center at Michigan Technical University in Houghton, Michigan. Then, students are refunded leftover money to use for other expenses.

5. You can use loan money only for certain things

Loan money can be used for education-related expenses only.

“You cannot use it to buy a car,” says Robert Muhammad, director of the office of scholarships and financial aid at Winston-Salem State University in North Carolina. “It’s specifically for educational purposes: books, clothing, anything that is specifically tied to the pursuit of their education.”

You can’t use your loan for entertainment, takeout or vacations, but you should use it for transportation, groceries, study abroad costs, personal supplies or off-campus housing.

6. Find out who your servicer is and when payments begin

If you take federal loans, your debt will be turned over to a student loan servicer contracted by the federal government to manage loan payments. If you have private loans, your lender may be your servicer or it may similarly transfer you to another company.

Find your servicer while you’re still in school and ask any questions before your first bill arrives, says John Falleroni, senior associate director of financial aid at Duquesne University in Pittsburgh. They’re also whom you’ll talk to if you have trouble making payments in the future.

When you leave school, you have a six-month grace period before the first bill arrives.

The article 6 Things to Know About Student Loans Before You Start School originally appeared on NerdWallet.

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