Starting your post-college life with student loan payments looming can be daunting. But you may have a reprieve before making payments, thanks to a student loan grace period.
Understanding how grace periods work can help you manage this transition period and set yourself up for success in repaying your loans.
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What is a Student Loan Grace Period?
A student loan grace period is a set period after you graduate, leave school, or drop below half-time enrollment when you are not required to pay federal student loans.
For most federal student loans, the grace period is six months. This means you have six months after graduating or leaving school before you have to begin making payments.
Some private student loans may offer a grace period, but this can vary by lender. Be sure to check with your lender to understand if your private student loans have a grace period and how long it is.
Take Advantage of Your Grace Period
Those first six months after school can be challenging financially. You search for a job and adjust to life after college.
You also begin to manage your finances independently. Having a grace period can provide some much-needed breathing room.
Here are some smart ways to use this time:
1. Get Organized With Your Loans
Locate all your loan documents and find out who services each loan. Set up accounts on the servicer websites to easily access loan information. Also, be sure your contact information is up to date.
2. Understand Your Monthly Payments
Contact your servicers to find out how much your required monthly payments will be for each loan. Then, you can start budgeting for the payments ahead of time.
3. Look Into Repayment Plan Options
Research the different federal student loan repayment plans available to you. Income-driven plans like PAYE or REPAYE base your payment on your income, which could lower your payments.
4. Consider Loan Consolidation
You can consolidate multiple federal loans into one, resulting in a single monthly payment. Just be sure there’s no downside regarding interest rates or repayment plan options first.
5. Get Financial Help if Needed
If making payments will be a struggle, bring up your concerns with your loan servicer now. They can walk you through options like income-driven plans, deferments, or forbearances to ease the burden.
6. Line Up Autopay
Setting up autopay through your loan servicer’s website automatically deducts monthly payments from your bank account.
This prevents any chance of accidentally missing payment deadlines and ensures your loans remain in good standing.
Taking time during your grace period to get organized and prepared for repayment makes the transition much smoother when payments kick in.
When Your Grace Period Ends
Your servicer will notify you as you get closer to the end of your 6-month grace period.
Here’s what to expect as this timeframe comes to a close:
- You’ll receive a payment schedule from your servicer detailing your monthly payment amounts and due dates. Your first payment is usually due around 45 days after your grace period ends.
- Any interest that accrues during the grace period will be added to your loan’s principal balance (a process called capitalization). This increases the total amount you ultimately pay interest on.
- For subsidized federal loans, the government pays the interest during your time in school and the grace period. Unsubsidized loans accrue interest starting at disbursement, so interest capitalization may be significant.
- Your loans change from in-school status to repayment status. Servicers report your updated status and payment activity to the credit bureaus each month.
- You need to complete student loan exit counseling if you have federal loans. This counseling provides useful tips for managing repayment successfully.
Follow all instructions from your loan servicer carefully to ensure your loans remain in good standing when the grace period ends.
Reach out to your servicer if you have trouble making payments immediately – they can explain options that may provide temporary flexibility.
Special Grace Period Situations
The standard 6-month grace period after graduating isn’t the only situation where you can get a break from making payments.
Here are some other times where a grace period may come into play:
1. Returning to School Before the End of the Grace Period
Heading back for graduate school or further education allows you to keep your grace period. Just be sure to notify your servicer and provide proof of enrollment.
The grace period clock then pauses until you are no longer enrolled at least half-time.
2. Military Service
Active duty military personnel get a special extension on their grace period. Instead of 6 months, it is delayed until you leave the military.
Make sure your servicer knows your military status to ensure proper documentation.
3. Loan Consolidation Grace Period
Consolidating your federal loans during your grace period lets you keep the remainder of the six-month grace before payments begin on the new consolidated loan.
4. Loans With Shorter Grace Periods
While Perkins Loans and HEAL loans are not very common, it’s important to note that their grace periods (9 months and 12 months, respectively) differ from the standard six months for federal loans.
The National Student Loan Data System provides details on all your federal loans.
5. No Grace Period on Plus Loans
An important exception is that Parent PLUS and Grad PLUS loans do not include any grace period.
With these loans, payments generally must begin within 60 days after the last disbursement.
Getting Through the Grace Period Successfully
The student loan grace period gives you breathing room before payments kick in after graduation.
Making the most of this time positions you for success once repayment begins:
- Start budgeting right away to get a handle on cash flow before payments start
- Research repayment plans beyond the standard option to find the best fit
- Line up autopay and educate yourself on how to make payments on time going forward
- Know that interest capitalization will increase your loan principal balance
- Contact your servicer early on if you foresee issues with beginning payment
Understanding the ins and outs of grace periods for your loans ensures you aren’t caught off guard.
While six months may seem short, you can accomplish much during your grace period.
Adopting smart money management habits allows you to manage student loan repayment for the long haul.
Soon, making those monthly payments will feel like second nature.
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