Your grace period is over: How to prepare to pay back student loans

When it’s time to start paying back your student loans, make sure you have a payback plan.

When you’re applying for student aide, federal loans lead the pack because of their low interest rate. But the benefits don’t end there: Federal student loans also come with a grace period after graduation. A loan’s “grace period” is a set time after you graduate before you’re required to start making payments. This gives you time to find a job, settle into your career, begin earning a paycheck, and prepare to pay back the money you borrowed.

Not all federal student loans have a grace period, and most loans accrue interest during the grace period. Loans with a six-month grace period include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans

Grace periods for private student loans vary in length or may not be offered at all. Check with your loan provider to be sure of all the details.

Here’s how to prepare and plan during your loan grace period:

  1. Track your loans. If you have multiple loans, log them all and note their interest rates and the amounts owed so you know what you’re working with.
  2. Make interest payments if you can. If your loans accrue interest during the grace period, consider making payments equal to the monthly interest. Just because the payment isn’t due doesn’t mean you can’t make one.
  3. Estimate your payments. Use a student loan repayment estimator to figure out exactly what your payments will be so you can budget.
  4. Carefully select your repayment plan. If you’re able to select your own repayment plan, be cautious of selecting plans with a very low payment. Some plans may be too low and not even cover the monthly interest. Your loan amount would actually increase monthly rather than decrease.
  5. Check on loan forgiveness programs. Some programs for teachers and public service workers may grant you forgiveness for some of your loans, meaning you’re no longer expected to pay your loan. Check to see if you qualify.
  6. Think about loan consolidation. When you consolidate private loans, you borrow enough money through a new loan to cover all of your existing balances. The lender will pay off your existing loans. Consolidation has pros and cons. While it may give you lower payments and interest rates, it can likely extend the length of your loan. Plus, consolidation benefits may vary depending on the loan and the provider. A private consolidation loan may disqualify you from some loan forgiveness programs.
  7. Think about options if you can’t pay when your grace period is up. These can include postponement for unemployment, deferment, and forbearance, which can temporarily stop or reduce payments. If you need assistance, it’s best to contact your loan service provider immediately (ideally before the grace period is up) to discuss. Once your loans are past due, some programs may not be available to you.
  8. Understand the circumstances that would nullify or extend your grace period. Besides graduating, only a few circumstances change your grace period — either extending it or nullifying it — including:
  • A call to active duty: Your grace period starts over when service ends.
  • You go back to school: Your grace period starts over after graduation or dropping below half-time status.
  • You consolidate your loans during the grace period: Typically a new two-month grace period begins once your consolidation loan pays out.

Grace periods details will likely vary by product and lender, so be sure to talk with your lender about the options available for your loan.

Curious to learn more about managing your student loans? Register for the Beyond College webinar on managing student debt.

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