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Student Loan Repayment: Grace Periods What to Know

If you got a loan for school, you should have had some counseling regarding your debt. Student loan debt is probably the least exciting part of graduating from college. If you are a recent graduate, you may hear a whole lot about a 6 month grace period. Let’s explore exactly what a 6 month grace period is, how to prepare for the end of the 6-month grace period, or how your approach to the grace period will affect you in the future.

 

Grace Periods

“No one told me about this” if that’s what you said when you read the intro paragraph; well you wouldn’t be the first, but you are in the right place! As a borrower, you are responsible for your financial decisions. It’s your responsibility to assure your loan gets paid on-time. If you don’t make payments on your loan in time it will affect your credit and could take a long time for that delinquency to be removed. A grace period is provided by the lender to a borrower. Grace periods are common for any type of loan not just student loan debt and can be common with credit cards too. The lender will allow you a specified period of time in which you are excused from making payments towards the debt. If you’re a recent college graduate, you’ll likely receive a 6 month grace period. The length of the grace period you’ll receive can change based on the types of student loans you have and who your loan provider is.

 

Unsubsidized Stafford Loans Vs Subsidized Stafford Loans

If you have a  Stafford Loan after Graduation you’ll be granted a 6 month grace period in which you are not required to make payments. If you have a Subsidized Stafford Loan that was originated before July 1, 2014, it will not accrue interest during the grace period. If you have an Unsubsidized Stafford Loan you will be responsible to pay the interest that is accrued while you utilize in-school deferment, grace period, or once the interest is capitalized upon repayment.

 

Direct PLUS & Parent PLUS Loans

Direct PLUS loans are taken out by graduate students without a cosigner. There is a 6 month grace period after the student is no longer enrolled for atleast half-time. Interest is accrued from the time of disbursement and is capitalized at repayment.

 

Parent PLUS loans are taken out by parents or guardians, of dependent undergraduate students. Repayment is expected when the loan is disbursed. Interest will begin to accrue from the time of disbursement. There is an optional 6 month grace period once the student is no longer enrolled for atleast half-time.

 

Federal Perkins Loans

These loans are provided to students that have “exceptional financial need.” After you graduate, withdrawal, or drop under half-time status you have a nine-month grace period. Borrowers with Perkins loans shouldn’t be charged during the initial grace period.

 

Private Loans

Private loans vary, so if a grace period is permitted it is ultimately up to the lender who provided you with the loan. Typically you should be able to find any information regarding a grace period in your loan agreement. When using a private lender it’s likely that interest will be accrued during the grace period and then ultimately capitalized upon repayment.

 

What is Capitalized Interest?

Capitalized Interest can seem pretty complex, but it’s fairly simple and REALLY important that you understand what it is. When your loan is disbursed or the funds are sent to your institution, the interest on that loan starts to accrue. Yes, even if you are still in school interest is being accrued on those funds. Upon your repayment that interest will get added onto the principal balance of your loan. Now, capitalized interest will depend on the type of loan that you have. As we discussed above some loans will accrue interest and some will not so be sure to know the types of loans that you have.

 

So how exactly does capitalized interest work? Let’s say that you went to school for 4 years, borrowed $10,000 a year with a 7% interest rate. So you borrowed a total of $40,000 from your lender.  If you didn’t make payments during school and you had a 6-month grace period (no payments) you would have acquired $1,412 in interest only, after the grace period! If you had a 10-year loan term, the total amount that you’ll have paid on the loan with interest capitalization is $57,700.  That equates to an additional penny for every dollar you borrowed. Try calculating your capitalized interest here

 

Financial Planning

It should go without saying, but if you can make payments while you’re in school or payments while you’re in your grace period, do it! If you are the last minute type of person and didn’t know about capitalized interests until just now, it’ll be okay. Step one- don’t panic! Here are some ways that you can pay down your debt.

 

Pay over the minimum payment. Regardless, if you’re on an Income-Based Repayment plan or just making the minimum payment, interest is still being accrued! In order to cut down on the interest being accrued and concentrate more of those payments onto the principle of your loan, you need to pay more. It’s easier said than done, but any additional money that you can put towards the debt will help you to pay less overall. Try making a budget that will allow you to make bi-monthly payments towards the debt. Bi-monthly payments will allow you to pay down the interest sooner so your payments are concentrated on the principle of the loan.

 

Look to an Employer

A benefit that companies recently have found beneficial is helping employees with student loan debt. Some companies offer resources for graduates like paying contributions toward the debt and offering other financial resources. If you are in the market for new employment, try looking into this as a company benefit. If your employee can contribute to your debt pay down you’ll have the ability to pay it down sooner!

 

SideGigs

Lucky for you, the gig economy has become rather popular! Try picking up an extra side job, where the profits can all go straight towards your debt. You don’t need a special talent to have a side job. Though a talent helps there are always jobs like babysitting, dog walking, or even housesitting. If you aren’t sure where to start there are a ton of websites that you can use to create a profile and get connected with people locally.

 

Refinance Student Loans

If you have a high interest rate and a steady income refinancing student loans could be a good option. Refinancing allows you to combine multiple loans into one loan, allows you to select the repayment terms, and can help to cut down on the interest rate. In order to qualify for a student loan refinance you’ll need a steady income and usually a FICO score of 650 or higher. If you can’t qualify on your own, be sure to ask about adding on a cosigner.

 

Responsible Borrowing

If you’re a recent graduate or in-school currently, don’t try to hide from your debt. Avoiding making payments on your loan will only hurt you and your credit history. Do your research and talk with your lender. The more you can educate yourself as a borrower the better. Just remember, you’re building a strong foundation and you’ll be establishing yourself as a financially responsible borrower.  In a few years, you’ll be thanking yourself for the responsible financial choices that you’ve made!

 

Student Loan Refinancing or Consolidation?

 

 

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6 Things to Consider Before Refinancing Student Loans

If you’re like most grads who are paying down their student loan debt (roughly 62%), you may be hesitant to step into the brave new world of refinancing. Maybe you’ve grown comfortable with the current orbit of your old loan(s). Or maybe you want to think about your student loan debt as little as possible and think that by closing your eyes and making your monthly payments, your debt will simply vanish. And it will… eventually.

But you’re smarter than that, and hesitation could cost you thousands. But as you weigh your fears against the potential benefits of refinancing, the least you can do is be as informed as possible so you have hard evidence to consider while you count down to launch.

Let’s take a closer look at what refinancing your student loans might look like:

  1. To Consolidate or To Refinance? – Some grads confuse loan consolidation with refinancing individual loans and immediately shy away from the conversation altogether. The point of consolidation is to boil down all your various loans and interest rates into one, easy-to-remember monthly payment. The point of refinancing is to get a lower interest rate on one of your existing loans. You have several choices to make with your new loans. You could arrange for smaller monthly payments by extending the life of the loan. Or you could opt for similar monthly payments, but more of your hard-earned cash goes to paying down the principal of the loan.
  2. Fixed Rate vs. Variable Rate – Just in case you missed it on your first go-around, there are two types of interest rates – fixed and variable. Fixed rates stay the same over the life of the loan, while variable rates change depending on several variables like the federal funds rate. You’ll have to decide what’s more important – the possibility of getting the lowest interest rates or the certainty of knowing exactly how much you’ll pay every month over the life of your loan. Before choosing a variable rate loan, consider whether you can afford to make the payments if the interest rates spike for months at a time.
  3. The Good News – Refinancing is especially beneficial for recent graduates, as they’re often struggling to keep up with student loan payments and other bills on low starting salaries. By refinancing, you can pay less in interest or lower your monthly payments. Consolidating multiple student loans into one could get you a lower single rate than if you added up the rates from all your loans. Decreasing your loans by even one percent could shave hundreds off your monthly payment, which means tens of thousands over the life of your loan. (The average refinancer saves over $20K on a twenty-year term. Calculate your savings)
  4. The Not-So-Good News – Unfortunately, refinancing is not available to everyone. Most creditors want to see a credit score of 700 or higher before they’re willing to lend you money. They’ll also insist that you be gainfully employed and have a good record of on-time student loan payments.  Before you apply to refinance, check your credit report for any dings. If your credit score is too low, explore the many ways you can work to repair it. And if your first attempt to refinance is rejected, don’t be afraid to re-apply.
  5. Hidden Fees: Many lenders charge origination fees, a charge for just opening the loan, which can often cost around 1% of the total loan amount! As if that’s not enough to deter you from refinancing with them, many lenders punish you with an extra fee if you pay off your loan early. That’s because the longer you have the loan with them the more money they make. Reputable lenders such as Education Loan Finance can help empower you to borrow smart, save smarter, and pay off your student loan debt as quickly as possible, which is most certainly in your best interest (no pun intended). For that reason, we don’t charge application and origination fees, nor will we ever penalize you for paying off your student loan debt early.
  6. Get A Co-signer: We know it can be difficult to ask family members for financial help, but when it comes to refinancing your student loan debt, having a qualified co-signer might make the difference between “approve” and “not approve.” Ask someone close to you to act as a co-signer – someone with a strong credit profile who’s willing to be equally responsible with you for your student loan.

Explore Your Options Before Refinancing Your Student Loans

The prospect of refinancing or consolidating your student loans may cause some graduates to hesitate. But do yourself a favor and, at the very least, explore your options. You may be surprised at how much money you could save with a new loan. Whether you are ready to step into refinancing or simply want to get more information, Education Loan Finance is here to empower you. It’s a big, bright world out there, and we want you to feel confident that no matter what you do is the right step towards fulfilling your financial dreams.

Financial Planning for the New Year Begins with Repaying Your Student Loans

Start this year off by asking yourself, “What do I want?” That might seem like an overly simplified place to start when setting financial goals for your ENTIRE life, but you’d be surprised. If you’re reading this article, you’re most likely staring at a stinking pile of student loan debt with a shovel in hand, wondering where to begin. Whether you’re a recent grad settling into your shiny new job OR you’re several years into your career, you might be wondering why you’ve barely made a dent in paying off your student loans. You are not alone. For millions of people student loan repayment is a fact of life. But instead of putting your financial dreams on hold till you’ve paid your penance, there’s a couple things you can do this New Year that will help you get back on track and moving in the right direction. It’s time to dream big, and it starts with deciding what you want.

Imagine Financial Goals

Setting financial goals isn’t a big scary process. Try to think of it as an ongoing practice rather than a one-and-done deal. As life ebbs and flows, you’ll want to be flexible adjusting your financial life so you can cover your obligations while still maintaining a reasonable progression toward your goals. While envisioning your financial future, it’s imperative that you set clear goals to work towards. Developing short, mid, and long-term goals is key to making forward progress in the most efficient manner. Short-term goals are things you want to accomplish within one year, like establishing an emergency fund or creating a budget that actually works for you. Your short-term goals are going to change fairly often as life changes, but you still want to gain ground on your long-term goals. Mid-term goals are things you want to happen in a few years, such as financing a home or paying down education loans. Long-term goals are those that you’ll accomplish many years down the line, like investing in rental property or building an adequate retirement fund. Sometimes those goals seem too far away to worry about right now but if you’re smart you will take them seriously. The best thing you can do when setting goals is to close your eyes and really imagine having those things. It will build a desire – a fire in your belly – to do whatever it takes to reach that goal.

Set a Budget

A budget is not only your best friend, it’s the backbone of your financial life. Sticking to it can be tough, but within a couple months you’ll see progress. This next thing is important. If your budget isn’t written down, it’s not a budget. If you don’t give yourself limits, you’re likely to spend more than you should and your goals will start slipping away. When setting a budget, you have to be honest with yourself. Having good intentions isn’t the same thing as being realistic about what you’re willing to give up so you can set aside that money for your goals. Think about it. Where is the money going to come from when unexpected bills pop up, not to mention when you want to retire? You’ve got to be vigilant with your budget; you’re not sifting for gold here. That’s real money going out the door every time you open your billfold.

Check Your Progress

While it’s extremely important to prioritize these goals, you don’t have to approach them one at a time. Taking time to reimagine what life would be like when you reach your longer-term goals helps to keep up the motivation and daily sense of purpose as you tackle your short and even mid-term goals. Remember, be flexible. For instance, you don’t necessarily have to dig yourself out of student loan debt before you start investing in your other goals. Life isn’t always linear, so don’t get frustrated when it seems like all you’re ever accomplishing is one short-term goal after another. You’ll find that both the small things you do on a daily and monthly basis and the big things you do every year and over the decades will help you achieve all of your financial goals.

Get Informed

While it’s extremely important to prioritize these goals, you don’t have to approach them one at a time. Taking time to reimagine what life would be like when you reach your longer-term goals helps to keep up the motivation and daily sense of purpose as you tackle your short and even mid-term goals. Remember, be flexible. For instance, you don’t necessarily have to dig yourself out of student loan debt before you start investing in your other goals. Life isn’t always linear, so don’t get frustrated when it seems like all you’re ever accomplishing is one short-term goal after another. You’ll find that both the small things you do on a daily and monthly basis and the big things you do every year and over the decades will help you achieve all of your financial goals.

Revisit Your Plan

You also want to revisit your financial plan every time you have a big life event that will inevitably affect your finances – getting married, having a kid, switching jobs, paying off your student loan debt (cough cough). Reassess your goals AND your budget, then adjust accordingly. Imagine the day when the hundreds of dollars you paid every month for your student loan debt can now be utilized towards other investments – ones that finally compound in the black! Another reason to revisit your financial plan every few months is to see if you were able to achieve the short-term goals you had set out to earlier in the year? If you did, then celebrate. No really. Do a little something nice for yourself. If not, then why weren’t you able to get there? And don’t think that circumstances or other can get you off the hook. Remember, you are the only one in charge of reaching your goals. You’re smart. You can do this.

Be Consistent

Again, it’s doubtful you’ll make perfectly linear progress as you move forward through your goals. The important thing is not to be perfect, but to be consistent. If you get hit with an unexpected car repair or medical bill one month and can’t contribute to your emergency fund, don’t beat yourself up; that’s what the fund is there for. Just get back on track as soon as you can.

The Sooner, The Better

Again, it’s doubtful you’ll make perfectly linear progress as you move forward through your goals. The important thing is not to be perfect, but to be consistent. If you get hit with an unexpected car repair or medical bill one month and can’t contribute to your emergency fund, don’t beat yourself up; that’s what the fund is there for. Just get back on track as soon as you can.

Finally, yet perhaps most importantly, financial planning is NOT just for the soon-to-retire. We all need a plan, and the sooner you start, the better. Start researching today. Knowledge is power and the more informed you are, the more at peace you’ll be with your financial life, knowing that every day is another step closer to your bright future.

This is all about your life and how you want to live it now and in the future.  Set your goals and stick to them! If you find yourself year after year dancing around a goal rather than putting one foot in front of the next, be honest with yourself. It’s possible that goal isn’t quite as important as you made it out to be. It’s at that point that you….revisit your financial plan and adjust accordingly. Now you’re getting it!

We at Education Loan Finance exist to empower grads just like you to make educated financial decisions. We believe that in doing so, you can have a more fulfilling financial life, no matter how unattainable that might seem right now. With over thirty years of experience in the student loan industry, you can trust us when we say the most important thing you can do is put pen to paper and make your financial dreams a reality.