You do not have to make payments right away when you take student loans. Depending on the type of loan, you can have a few months after graduation before you need to start paying off. This time before payment is due is known as the student loan grace period. It’s a mechanism that you can use to get your finances in order before you make monthly loan payments.
What’s the Repayment Period on a Student Loan?
You don’t have to start making payments for certain types of student loans, particularly federal loans when the loan is disbursed. Instead, your loans are delayed, and you have a six-month period after you graduate, drop below the half-time enrolment rate, or drop out of school until you have to start paying off your debt-your word.
How Long Is the Grace Period of the Student Loan?
The length of your grace period and how interest accrues-and whether you have a grace period-depends on the type of loans you have.
Federal Student Loan
- Parent PLUS Loans: Like PLUS, Parent PLUS loans have no grace period and reimbursement is initiated when the loan is paid out. However, parents may request a delay in payment for up to six months following their child’s graduation from school, leaving school, or part-time status. Interest continues to accumulate, capitalizing on loan.
- Subsidized Loans: For Direct Subsidized Loans, the US Department of Education pays interest on the loan when you are in school at least part time and during the grace period of six months.
- Grad PLUS Loans: Grad PLUS Loans have no grace period but are automatically postponed six months after graduation by graduates and professional students. In the course of your education and the deferment period, interest on the loan is increased.
- Unsubsidized loans: Direct unsubsidized loans with a grace period of six months. However, interest accrues both before and after the grace period and is capitalized, i.e. added to the balance of the loan when the repayment starts.
If you graduated in May 2020, your grace period will end in November and your payments will be due. But in the aftermath of Covid-19, the federal government passed the Coronavirus CARES (Aid, Relief and Economic Security) Act. Under the CARES Act-and, a subsequent executive order-the government suspended all federal loans until 31 December and set the interest rate on those loans at 0%. Confirm with your student loan manager that you can start making payments when your grace period expires this fall.
Acquiring Private Student Loans
For private student loans, whether you have a grace period depends on the provider, the level of schooling, and the repayment agreement you signed up to when you take out the loan. Some lenders will require all borrowers to begin making payments while at school, whereas others allow you to postpone payments for up to 6 or even 9 months after graduation. If you plan to delay your payments but have a grace period, interest will continue to accumulate on the loans and will be added or capitalized to the principal sum.
For example, undergraduate loans from SoFi private lenders have four options for repayment:
- Fixed fees/payment. You pay $25 a month while at school, which helps minimize accrued interest.
- Repayment of interest only. You make deductions for accumulated interest while in school. You make both interest and principal payments after you graduate.
- Immediate refund. During your studies, you pay all the principal and interest.
Deferred refund. You’re not charged for six months after you quit school.
Some private lenders are giving even longer grace periods. With undergraduate loans co-signed by private lender Ascent, you will benefit from a grace period of nine months.
If you are not sure if you have a grace period or whether payments are due, please contact your lender.
Student Loan Repayment Options Following The Grace Period
When your grace period has expired, you need to start making your monthly payments. There may be alternatives, though, if you can’t afford them.
Options for Federal Student Loan Repayment
Federal student loans shall have the following repayment plans:
- Income Related Repayment Arrangements (IDRs). With IDR plans, your repayment period will be extended to 20 or 25 years and your payment will be dependent on your disposable income.
- Progressive refund. If you intend to apply for a phased repayment plan, your payments will start to be tiny. They’re going up every two years-even though your income doesn’t change-and your debts are going to be paid off in 10 years. Tolerance or guilt. If you lose your job or have a medical emergency, you can delay your payments by federal default or deferral.
- Extended repayment. Under the extended repayment plan, your repayment duration is extended to 25 years. Your payments may be fixed or incremental.
- Repayment on a standard basis. As part of the traditional repayment plan, you make fixed monthly payments and pay off your loans over a period of 10 years. Standard installment plans are default options.
Options for Private Loan Repayment
Private student loans do not have the same incentives or opportunities for repayment as federal loans. Beyond the standard repayment plan that you have chosen when you take out the loan, you typically have only 2 alternatives:
- Refinancing of student loans. If you refinance your loans with another lender, you can opt for a longer loan period and reduce your monthly payment.
- Forbearance. Not every lender offers forbearance plans, but some offer them. If you have financial problems, please contact your lender and explain your situation. You could be in a position to make reduced payments or even to delay them temporarily. For example, the private student lender Education Loan Finance (ELFI) allows borrowers to default for up to 12 months.
Tools To Make the Most Out of Your Grace Period
Your grace period allows you opportunity to locate a job and also get your finances in order before you have to think about the repayment of your loan. To prepare for the repayment of your loan, take the following steps:
1. Check Your Loans and Your Minimum Payments
Student loans can change hands, and you can get several loans from various lenders. Check your loans, loan managers, and minimum payments until the end of your grace period.
Don’t know who the lenders are? You can check for federal student loans through the National Student Loans Data System. Through private loans, you could see which loans have been under your name by reviewing your credit report free of charge at AnnualCreditReport.com.
2. Develop a Budget
Sit down and mention your monthly post-tax income and all of your fixed expenses, including your student loan payments. If your expenses surpass your revenue, search for places where you can reduce your costs. For example , you can ask your roommate to minimize your living costs, or you can remove the cable and use the streaming service instead.
3. Start Looking for a Job
If you are not yet working, optimize your grace period by actively finding jobs. Check job postings, contact your network, and update your resume so that you can secure your place and start earning income.
4. Pay if You Can Afford It
If you are working and can afford to do so, start making payments during your grace time. Early payments will minimize accumulated interest, which will help you save money and pay off your student loans more quickly.
5. Submit Alternative Payment Arrangements
If you find that you are unlikely to be able to pay your minimum loan sum, please contact your lenders immediately. You may be eligible for alternative repayment options, such as IDR plans or forbearance, depending on your finances. Taking advantage of these options from day one of your repayment period will give you more leeway in your budget.
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