Refinancing vs. Student Loan Grace PeriodMay 14, 2018
April showers bring May flowers, but what do May flowers bring? Millions of college grads who will enter the workforce with an average of $37K worth of student loan debt. Fortunately, the government has your back (at least for six months, anyway) in the form of the student loan grace period. But before you lower your poolside lounge chair down a couple notches and nap through the sunny afternoon, take note of the late summer storm brewing on the horizon.
It’s grace, you just have to pay for it
It’s true that you are NOT required to make repayments on your federal loans for six months. What you may not know is that, in most cases, interest still accrues during this grace period. Furthermore, you may not be aware of how much you could save by taking advantage of early repayment rather than the grace period.
An article on studentloanhero.com puts it this way:
“Let’s say you have $30,000 in student loans at 6% interest. Make just one extra payment of $500 dollars this summer and you could cut $1,120 in interest from the lifetime cost of your loan. If you really want to get serious about putting extra payments towards your student loans, contribute $1,500 before payments become due and reduce the time it takes to pay off your debt by two years – plus earn $3,188.29 in interest savings.”
If you consider how much interest is going out the window, it’s important to remember you are, in a sense, paying for that six-month buffer. By putting in a couple weeks’ worth of work, you can stretch your hard-earned summer dollars quite a long way and reel in the length of time you’ll have to stare at your student loan debt out of the corner of your eye.
Steps to repaying your student loan debt
Regardless of whether or not you choose to take ‘advantage’ of the grace period, you will eventually have to start making payments. An excellent article on cnbc.com outlines the steps you might consider in order to avoid common mistakes many recent grads make.
1) Know your loans
2) Update your contact info
3) Monitor your cash flow
4) Register for autopay
5) See if your employer will chip in
6) Consider consolidating or refinancing
We encourage you to read the article and explore the options therein, but we implore you to seriously consider Step #6 by refinancing your student loans (maybe even bump it up to, let’s say – Step #1 or #2 because it actually encompasses the others). It’s free and will help you in virtually every sense – a low, fixed interest rate with a single monthly payment and a repayment term that best fits your budget. The only way refinancing could be considered a disservice is if you’re planning to hang your hat on one of the federal loan forgiveness or repayment programs, as refinancing will automatically forgo many of those options. Though, if you do your research on those programs, avoiding them might be the most graceful step you can take.
Borrow Smart, Save Smarter
Refinancing with a reputable lender like Education Loan Finance can save borrowers an average of $280* per month and more than $26K over the life of their loans. The smartest move you can make after school would be to lock yourself into historically low-interest rates while simultaneously paying down your loan balance over the summer. Besides, you can still relax by the pool (on the weekends, of course), only instead of avoiding the impending storm of student loan debt, you can daydream of being free from the burden of student loans years before the rest of your graduating class.
* Member Lifetime Savings – Average member lifetime saving calculation of $26,215.92 total savings is based on information provided by Education Loan Finance customers who refinanced their student loans between 08/16/2016 and 10/07/2017. While these amounts represent average amounts saved, actual amounts saved will vary depending upon a number of factors.