Preparing for Repayment: Understanding Your Grace Period
When you first took out federal student loans you may have heard the team “grace period”. Do you remember what it means? The grace period is the six month period before loan repayment begins. This is a good time to determine if you are returning to school, and then to work with your servicer to understand what your monthly payment will be and when repayment starts. In this article, I’ve broken it down so you’ll have a clear understanding of how this valuable period of time works.
What is a Grace Period?
Grace period is an amount of time (typically 6 months) in which you do not have to make payments on your student loans after initially leaving school or dropping below half-time status.
Now comes the part where some students may get slightly confused. Some students think their grace period is always there ready to use, or it just starts all over again once they go back to school.
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When it comes to federal Stafford loans:
- You have a six-month grace period.
- If you use your entire grace period after leaving school, you will not receive a new grace period on those loans in the future. The end!
- If you go back to school at least half-time while you are still in the grace period you will then receive a full six-month grace period once you leave school. The grace period is six continuous months.
- Your loans may have different grace periods if you are in and out of attendance. And that means it is possible that some of your loans can enter repayment at different times.
Now, for those of you who have Perkins loans, the grace period is a little different.
- You have a nine-month grace period.
- If you go back to school at least half-time while you are still in the grace period you will then receive a full nine-month grace period once you leave school. The grace period is nine continuous months.
- If you use your full nine-month grace period and you then return to school, you will be awarded a six-month grace period once you leave school.
Understanding how your grace period works will help you to be proactive before your loans go into repayment. This is the time to make sure you understand loan repayment—the total amount you owe, your monthly payment, who you pay, how you pay, and what you can do if you are not able to pay.
If you are unsure how much grace period you have, you can always look on your master promissory note. You can also contact your loan servicer—they can tell you how much grace time, if any you have used. They can also talk you about different payment options once your grace period ends if you are not returning to school. If you’re not sure who your loan servicer is, you can go to the National Student Loan Data System to get helpful information about your loans and find out who your servicer is.
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5 Key Challenges That College Students Face After Graduation
Just around the time college students adjust to the changes they faced entering higher education, it is time to graduate and move on to an entirely new set of concerns. While the long-term goal for most college students involves productive employment following school, the prospects of turning the page on higher education and entering the workforce is intimidating for many graduates.
Even the most prepared graduates face ever-changing employment conditions, so the key to navigating the complex waters of entry-level employment is to remain flexible. Transitioning from high school home life to independent college living presents surmountable challenges, which dedicated students overcome. Similarly, moving into adult roles can also be accomplished by staying open to change and embracing opportunities.
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A number of factors influence the post-graduation experience for students moving to the workforce, so each case is unique. There are universal hurdles in store for graduates though, regardless of their grades, academic majors or schools of attendance.
Today’s graduates are likely to be influenced by the following challenges:
1.) Debt and Financial Pressure
Students learn valuable money management lessons during college, as they make ends meet with limited resources. Most college expenses, however, qualify for easy-access financial assistance, even if it is college cash set aside by parents. As a result, financial pressure is ratcheted-up once graduates leave school. Not only do cost of living expenses like housing, food, and transportation rear their heads, but student loans also start coming due. The resulting financial pressure forces graduates to adapt their lifestyles to account for debt and living expenses—sometimes altering their career paths to cover all the bases.
2.) Lagging Career Opportunities
Unfortunately, college diplomas are not automatic tickets to the career fast track. On the contrary, the job market is highly competitive, responding to prevailing economic conditions and other influences. Graduates suffer during lean periods in the economic cycle, because the job market is often flooded with qualified job-seekers possessing higher levels of experience than recent graduates. And unfortunately, gaining valuable experience is equally difficult during economic slowdowns, because internships and other paid training opportunities are less widespread.
3.) Lifestyle Adjustments
Graduates face a number of social adjustments following college. Landing employment, for example, may require relocation from family and friends. Compared to hyper-connected campus life, getting started on the career path can leave some graduates feeling isolated. And internal conflicts arise too, as recent graduates struggle to find the proper balance between their careers and their family and social obligations.
4.) Maintaining Good Credit
Most newly-appointed graduates are not financially prepared to make major purchases like homes and expensive cars, but credit pressures nonetheless present themselves to recent graduates. Effectively managing student loans and other expenses sets the stage for future credit victories. Recent graduates, however, often struggle to keep up with financial obligations, due to low starting salaries and reduced career opportunities. In many cases, deferring student loan repayment or consolidating college debt makes the transition easier for recent graduates.
5.) Excessive Demands
Hard work is an ingredient in every recipe for success, but today’s highly competitive work environment doesn’t always account for obligations beyond the workplace. As a result new graduates sometimes face unrealistic expectations from employers demanding long hours and mentally demanding output. Paying your dues is a valuable part of the mobility curve, but good health and balanced existence are reasonable expectations—even for entry-level employees.
Successful graduates remain flexible and open to adjusting their career trajectory. Even the best laid plans don’t always lead to immediate post-graduate success, so perseverance and adaptability help new graduates navigate the ever-changing job market.
About the Author: This is a guest post by Sarah Brooks from free people search. She is a Houston based freelance writer and blogger. Questions and comments can be sent to brooks.sarah23 @ gmail.com.
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Student Loan Repayment FAQ
Taking out student loans to pay for college is a great way to finance your education—if you borrow smart. The best way to be a smart borrower is to be informed about all aspects of your student loans, especially repayment. If you aren’t sure about something regarding your loans you should always clarify by asking a reliable source; your loan servicer is usually the best place to direct your questions. In addition to contacting your loan servicer for help, this list of the most common FAQ on student loan repayment may be able to shed some light so you can be armed with the information you need to borrow smart.
Student Loan Payment Questions
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You will find answers to the following questions (Click on a question in the list below to jump to an individual answer or scroll through to read all):
- When do I start repaying my loans?
- What if I can’t afford to make my payments?
- Where can I get a complete summary of my loans?
- What is the difference between subsidized and unsubsidized loans?
- What’s a deferment?
- What’s a forbearance?
- Can I pay all or part of my loans before payments are due (prepay)?
- I’ve heard that being late on my student loan payments will affect my credit. How?
- What is a credit score, and why does it matter to me?
- What’s the difference between delinquency and default?
- Can I lower my monthly payment to an amount that works better for my budget?
When do I start repaying my loans?
Your first payment will be due when your grace period ends, which for Stafford, Direct Subsidized and Unsubsidized loans is 6 months after you graduate, withdraw or drop below half-time enrollment.
IMPORTANT NOTE: It is your responsibility to know when and where to send your payments—do not wait to receive a payment notice or statement to make your payment. If you wait for your loan servicer to contact you first, you may already have missed a payment.
If you do not know when and where to send your payment, visit the National Student Loan Data System (NSLDS), the central database for all federal student loan information.
What if I can’t afford to make my payments?
If you cannot afford your payments, contact your loan servicer. Federal student loans offer several affordable options to help you repay your loans. Contact your loan servicer to discuss your situation while you still have options. If you default on your loans these options are no longer available to you. Many times, they can help you find a solution that works for you.
Where can I get a complete summary of my loans?
If you know who your loan servicer is, you can contact them to receive a personal loan statement. Most loan servicers offer online access to loan information.
If you are unsure about who your loan servicer is, visit the National Student Loan Data System (NSLDS), which is the centralized database for federal student loan information. If you have private or state loans, you will need to locate your promissory note for those loans or call your school for more information. Once you access NSLDS you will be able to get information on all your federal student loans and contact information for your loan servicer. Some borrowers have more than one loan servicer.
If you have private, state or institutional (school) loans, you will need to locate your promissory note for those loans or call your school for more information.
What is the difference between subsidized and unsubsidized Stafford loans?
With subsidized loans, the federal government pays the interest on the loans while you are in school, during your grace period*, during any authorized periods of deferment and in certain situations during repayment.
In the case of unsubsidized loans, you are responsible to pay all of the interest that accrues. You have the choice of paying the interest or allowing the interest to accumulate until you enter repayment.
*The federal government does not pay the interest during the grace period for Direct Subsidized loans disbursed between July 1, 2012, and July 1, 2014.
What’s a deferment?
A deferment is a period of time during which your loan servicer allows you to postpone your monthly payments. Deferments are only granted under specific circumstances, such as unemployment or returning to school. Contact your loan servicer to see if you qualify for a deferment.
What’s a forbearance?
A forbearance is a period of time during which your loan servicer agrees to temporarily postpone or reduce your loan payments. A forbearance is a good option if you are experiencing short-term financial difficulties and do not qualify for a deferment. Even though your payments are postponed or reduced, you will still be responsible for paying the interest that accrues on your loans, even on subsidized loans, during the forbearance. If you do not make interest payments during your forbearance, the amount you owe will increase.
Can I pay all or part of my loans before payments are due (prepay)?
Yes, you may prepay your federal student loans in part or in full at any time without any prepayment penalty, regardless of your repayment plan. If you can afford it, prepaying your loans is a good idea because it helps reduce the total cost of paying back the loans.
I’ve heard that being late on my student loan payments will affect my credit. How?
You are building a credit score by repaying your federal student loans. Your credit score is based on your financial history—loans you have, amounts you owe, on-time payments, etc. Credit scores can vary depending on the source of your information, but one thing is certain: if you are consistently late on your student loan payments, this will be reflected on your credit report. Missing payments may lower your overall credit score making it difficult for you to get other loans such as a car loan or a mortgage. Get into the habit of paying your student loans on time every month. You can track your credit score to see how your payments reflect this number.
What is a credit score, and why does it matter to me?
A credit score is a number generally between 300 and 850 that summarizes how responsible a person is with debt. So, why does a credit score matter?
Banks, creditors and others use the credit score to predict a person’s future success of repaying borrowed money. The lower the score, the worse your credit history is and the harder it is to obtain loans for things like a car or a home. A low score can also result in creditors charging you a higher interest rate on loans and credit cards, which will increase the amount you have to repay. In some cases, a low score can also hinder your eligibility for employment.
To arrive at a single score, a credit bureau assigns numerical values to specific pieces of a person’s financial information, such as bankruptcy filings, outstanding debt, late payments, the number of inquiries on your credit history, the number of open accounts, etc. These values are put through a series of mathematical calculations to produce a single number—the credit score.
What’s the difference between delinquency and default?
Delinquency occurs when your loan payment is late (also known as past due). If you are delinquent on your loans, there are several options available to you to help you get back on track and avoid the consequences of delinquent payment. Contact your loan servicer to learn more. They will make sure you have an accurate understanding of your delinquency and inform you of the best course of action.
Default can occur when your loans are delinquent for 270 consecutive days or more. Defaulting on a loan has long-lasting and severe consequences, leaving you with few options to repair the damage. Default stays on your credit report for up to seven years and can prevent you from obtaining loans to purchase a car or buy a house.
Can I lower my monthly payment to an amount that works better for my budget?
As long as you have not defaulted on your student loans, you may have options to change your payment plan. To switch payment plans, you’ll need to contact your loan servicer. If you are behind on your payments, contact your loan servicer; they are here to help you.
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