Congratulations! You graduated from college and have hopefully settled into the start of your career. If it has been almost 6 months since your graduation, it’s most likely your student loan grace period is nearing the end if you have federal student loans. Are you prepared for when your grace period ends? Luckily we have some actions you can take to prepare.
If you have federal student loans, there is a six month grace period before you have to begin making payments after you graduate, leave school or drop below a half-time student. Not all federal student loans have a grace period. The loans that do include: direct subsidized and direct unsubsidized. PLUS loans for graduate school have a six month deferment period after graduation where payments are not required. Some private student loans also have a grace period but it may not be six months. Be sure to check with your lender to determine if any grace period exists.
Actions to Take
Here are a few actions you should take before your grace period ends to ensure you are prepared.
Determine Your Debts
First, it’s important to understand the types of student loans you have. For example, do you have private or federal loans? If you have federal student loans, you’ll need to determine whether you have subsidized or unsubsidized loans. Subsidized loans mean the U.S. Department of Education will pay the interest on the loan during the grace period for most loans. (Note: If you have a direct subsidized loan that was disbursed between July 1, 2012, and July 1, 2014, you are responsible for the interest during the grace period.) If you have a Direct Unsubsidized loan you will always be responsible for the interest, even the interest accruing during the grace period. This means that if you don’t need the grace period you may want to think about at least paying the interest on the loan.
Be sure to take stock of your other debts, such as a car loan or credit card payments, and their minimum payments.
Make a Budget
Determine a budget that includes your new student loan payment and all other debt payments. Once you determine your budget, start following it before your grace period ends. The money budgeted for your student loan can be put aside to use as an emergency fund. Or use the money you saved during the grace period to make a principal-only payment to get ahead on your repayment.
Set Up Auto-Pay
Another great action to take during your grace period is setting up auto-pay through your loan servicer. Setting up auto-pay will ensure your student loan payment is always made on time. Another great benefit of using the auto-pay feature is that federal student loans are given a 0.25% interest rate reduction. Some private student loan lenders also provide a discount for auto-pay so check with your lender if any discount is available.
Establish a Debt Repayment Plan
Your grace period is a great time to establish a student loan debt repayment plan. A debt repayment plan will help you decide exactly how you will pay off your debts. There are two main types of student loan debt repayment plans, the snowball method, and the avalanche method. You have to decide which method would work better for your financial situation and motivation. Either method will be helpful if you have multiple student loans or other debts to pay off. Once you decide on your method, you will know how to allocate any extra money you have in your budget for debt repayment. When it comes time for your grace period to end you will be more than ready to start paying down your loans efficiently!
Research Repayment Options
- If you have multiple student loans you can pay each loan, keeping track of each loan individually and their due dates.
- Another option is to consolidate your federal loans into one loan. The average interest rate of the consolidated loans becomes the fixed interest rate on the new consolidated loan. This is consolidating your federal loans into a Direct Consolidation Loan through the U.S. Department of Education.
- Refinance student loans. Once you start getting your finances in order you may realize your student loan payment is not going to fit in your budget or has a much higher interest rate then what is available now. That’s where refinancing your student loans can help. Refinancing your student loans means you will borrow a new private student loan to pay off any previous student loans (including federal and other private student loans). Refinancing can save you money because interest rates can be much lower than for federal loans. A lower interest rate means you are saving money in interest costs monthly and over the life of the loan. To find out how much you could save use our Student Loan Refinance Calculator.*
Learn About Borrower Protections and Programs
When you have federal student loans you are provided benefits that are not always provided by private student loan lenders. The grace period of your loans is a good time to find out about any federal borrower protections you may want to use in the future, such as deferment and forbearance for your loans. Also, if you work for a non-profit or government agency, your loans may qualify for forgiveness under the Public Service Loan Forgiveness (PSLF) program. During the grace period, it is helpful to learn about the requirements for the program so when your payments begin you can be sure they qualify under the specific rules of the program.
Learn About the Repayment Plans
If you are shocked by what your monthly payment will be on the standard repayment plan, check into the other student loan repayment plans provided for by the U.S. Department of Education. Certain loans are eligible for an Income-Driven Repayment Plan, where your payment will be based on your income. Or you can elect to have your loans on the Graduated Repayment Plan that will extend your loan term to provide for a smaller monthly payment. However, keep in mind that you will end up paying more interest over the loan term.
The Bottom Line
Taking these actions will help you be prepared for the end of your grace period. You are already a step ahead by thinking about this now. This preparation will start you off on a bright financial future knocking out your student loans. Good luck!
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