While the stress of term papers and finals comes to an end once you graduate from college, the stress of building your post-collegiate life—and dealing with student loans—is just beginning.
Even if you’ve already got a job, you may have to move to a new city, and it will likely be a bit before a steady paycheck starts rolling in. Luckily, many student loans allow a grace period to give you a chance to put your life in order before you have to pay back your loans.
What Is a Grace Period?
The student loan grace period is typically six months after you graduate from school. However, the clock can start ticking if you leave school before you graduate or you drop below half-time enrollment.
Rules about grace periods can vary depending on the type of loan. You can expect a six-month grace period from Direct Subsidized and Unsubsidized Loans. Federal Perkins Loans, when they were offered, sometimes have a nine-month grace period (check with the school where you received your loan), while PLUS Loans offer no grace period at all, but if you have a PLUS Loan and need more time before you start to pay it off, you can usually apply for student loan deferment.
In general, private loans do not offer grace periods, but there are some that do. So be sure to check with your loan provider to understand their specific terms regarding grace periods.
The grace period is typically only available to you once during the life of your loan. However, there are two possible exceptions for federal student loans: First, if you are an active member of the military and you are called to service for more than 30 days during your grace period, the grace period will start over upon your return.
Second, if you go back to school before the loan’s grace period ends. One word of caution: If you consolidate a federal student loan during its grace period, you will forfeit the remainder of that grace period.
Grace periods also come with another hitch—though you don’t have to make payments during the grace period, some loans, such as a Direct Unsubsidized Loan, will still accrue interest. These interest charges are added to your principal balance, and will have to be paid when the grace period is over.
Making the Most of Your Grace Period
The main advantage of grace periods is that it gives you time to settle in to your new post-graduate life before you have to start paying off your student debt. It gives you time to do things like find a job, move to a new city, and figure out the other bills you may be paying for the first time. Ideally, this period gives you some time to build your income to the point where you can then start paying back your loans.
If you find yourself a little bit ahead of the game, you don’t have to wait for the grace period to end before you start paying back student loans. You may decide that the cost of accruing interest over the period isn’t worth the benefits of waiting. The choice you make will depend on your personal situation and income.
While the grace period may seem like a vacation from your loans, it actually might be a good time to put your financial house in order so you’re better positioned to handle them. Here are a few steps you might consider taking that can help you stay on track:
Getting Reacquainted With Your Loan Terms
First things first—gather information about all of your loans. It may be four years since you last looked at any of your loan information, so get yourself reacquainted.
You can look up your federal loans on the National Student Loan Data System , and you can request information about private loans from your private lender(s). Pay attention to what types of loans you have, whether they offer a grace period, how long the period is, and all interest charges.
Once you understand what types of loans you carry and their terms, you can determine the best options for paying them back. This will help prioritize which loans you want to tackle first.
Federal loans may offer hardship options like forbearance (temporarily halt payments) and income-driven repayment plans (longer-term payment reduction). Though private loans are less likely to offer programs like this, some do, so it’s worth checking.
Is your grace period up?
Look into refinancing your student loans.
Building a Budget
This may be a good opportunity to take a long hard look at your finances. While you may be just getting on your feet financially, this is a perfect time to get into the habit of budgeting. Take a look at all of your monthly income and subtract any necessary living expenses like bills, rent, and food.
What you’ve got left is the money you can devote to paying down debt and for discretionary expenses. This amount can give you an idea of how large a student loan payment you can make each month.
Figuring Out Your Monthly Payment
Federal loans often offer flexible repayment options and loan terms. For example, extending the term of your loan can help you lower your monthly payment.
Be aware that extending your term also extends the amount of time you pay interest on your loan, which can cost you more money in the long run. Weigh this consideration carefully as you decide how much to devote to monthly payments.
Considering Student Loan Refinancing
Getting reacquainted with your loans gives you a refresher on their terms and interest rates as well as the repayment options available to you. Yet, if these options don’t work for you, the good news is you’re not necessarily stuck with them.
You could consider refinancing your federal and private loans for terms that work better for your situation.
When you refinance a student loan, you are essentially taking out a new loan that pays off your old loans. Now, you only have one loan to manage, and hopefully a lower interest rate or a term that works better for you.
Typically, to qualify for student loan refinancing, it helps to have a strong credit history. For example, if you had a credit card that you paid off regularly, your credit score may be sufficient to meet lender eligibility requirements. They’ll likely consider other personal financial factors, like your income, too.
Also, before refinancing a federal loan, make sure that there are no federal benefits that you want to take advantage of, such as loan forgiveness, income-driven repayment, and other programs that are only available if you hold on to your federal loans.
These benefits don’t transfer when you refinance with a private lender. That said, other benefits may be available, depending on the lender. For example, if you refinance before your grace period ends, some lenders will honor the remainder of the period.
Make sure your grace period is time well spent, and take the opportunity to understand all your options for paying back student loans.
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SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.