Student Loan Consolidation Guide

Student Loan Grace Period: 5 Steps to Take Before Your Grace Period Expires

If you’re part of the 92% of college graduates with federal student loans, you may be panicking with November right around the corner. Why? Because the end of November also marks the end of the student loan grace period on the majority of federal loans.

But there’s no need to panic. If you know your options and take the proper steps, paying off your student loan debt may be less daunting than you think.

What does grace period mean? The student loan grace period is the time between graduation and the due date on your first loan payment.

Follow these five steps before your federal student loan grace period expires.

1. Find out when your first student loan payments are due

What does grace period mean on student loans? The student loan grace period is the time between graduation and the due date on your first loan payment.

Here’s what you need to know about the student loan grace period for each type of federal loan:

  • All federal loans count consecutive calendar months. Summer months count in your grace period.
  • Unsubsidized and subsidized loans have a six-month grace period.
  • Subsidized loans don’t accrue interest during this time.
  • Perkins loans have a nine-month grace period without accruing interest.
  • PLUS loans, whether issued to students or parents, do accrue interest during grace periods.
  • The grace period for PLUS loans is only 45 to 60 days. Contact your servicer immediately if you didn’t request a longer break from payments or else you could end up with missed payments reported to credit bureaus.
  • You can ask your loan servicer(s) about setting a repayment date that coincides with a day in the month that works best for you. It’s up to the servicer whether they honor the request.

You may have several different types of loans, even for one semester. Log into studentloans.gov to view the contact information for your federal student loan servicers. For Perkins loans, contact your school directly.

If you have private student loans, you may have a student loan grace period, too. The difference with a private loan is the amount of time is set by each lender. If you don’t remember all your private loan lender names, pull your free credit report at annualcreditreport.com.

2. Review your available repayment plan budget

Before choosing a repayment plan, review your current spending habits and figure out a reasonable budget.

A good starting point is to look at your online bank statement. See what you’re currently spending and what you’re left with at the end of each month. Then, figure out what you’d have with your student loan payments thrown into the mix.

If you discover that you’ll barely make it by, find areas where you can cut some expenses. For example, can you reduce your cell phone bill? Or perhaps you can save money by cooking more and eating out less.

Once you’ve figured out the number you can comfortably afford each month, you’re ready to consider repayment plans. Remember, this amount will have to cover all your loans, whether private, federal or both.

3. Learn about private and federal repayment plan options

Standard repayment plan

If you don’t choose a plan, your loan servicer will automatically place you on the standard repayment plan.

You may have slightly higher monthly payments under this plan, but you’ll pay off your loan in the shortest time compared to other options. That means you’ll also pay the least amount in interest over the life of your loan.

Eligible loans
  • Direct Subsidized Loans.
  • Direct Unsubsidized Loans.
  • Direct PLUS Loans.
  • Direct Consolidation Loans.
  • Subsidized Federal Stafford Loans.
  • Unsubsidized Federal Stafford Loans.
  • FFEL PLUS Loans.
  • FFEL Consolidation Loans.

Extended repayment plan

An extended repayment plan lets you make lower payments over a longer period of time. Payments can be made for up to 25 years at a fixed or graduated amount. You need a total federal loan tally of over $30,000 to qualify.

Eligible loans
  • Direct Subsidized Loans.
  • Direct Unsubsidized Loans.
  • Direct PLUS Loans.
  • Direct Consolidation Loans.
  • Subsidized Federal Stafford Loans.
  • Unsubsidized Federal Stafford Loans.
  • FFEL PLUS Loans.
  • FFEL Consolidation Loans.

Graduated repayment plan

With a graduated repayment plan, your payments will start off low and increase every two years. This is a good option for people whose current income is low but expected to increase in the future.

Eligible loans
  • Direct Subsidized Loans.
  • Direct Unsubsidized Loans.
  • Direct PLUS Loans.
  • Direct Consolidation Loans.
  • Subsidized Federal Stafford Loans.
  • Unsubsidized Federal Stafford Loans.
  • FFEL PLUS Loans.
  • FFEL Consolidation Loans.

Income-driven repayment plans

Income-driven repayment plans enable you to set your monthly loan payment at an affordable amount based on your income and family size.

Here are the four income-driven repayment plans:

  • Revised Pay as You Earn Repayment Plan (REPAYE). Your payment amount will be 10% of your discretionary income.
  • Pay as You Earn Repayment Plan (PAYE). The payment amount is typically 10% of your discretionary income, but never more than the amount on a 10-year standard repayment plan.
  • Income-Based Repayment Plan (IBR Plan). If you’re a “new borrower,” payment amounts are generally 10% of your discretionary income— it’s 15% if you’re not a new borrower.
  • Income-Contingent Repayment Plan (ICR Plan). You’ll either pay 20% of your discretionary income or the amount owed on a fixed 12-year repayment plan that’s based on your adjusted gross income—whichever is less.
While there are four options listed for income-driven repayment, choosing a repayment plan for most May grads is pretty simple. Typically, borrowers new to repayment choose the Pay as You Earn Plan, which has the lowest monthly payment. The Revised Pay As You Earn Repayment Plan (REPAYE) has the same low payment option and can include older federal student loans. 
If you have older loans and are not on REPAYE, you can call your servicer and see if you can switch plans.

If you qualify for Public Service Loan Forgiveness, where part of your loans are forgiven after 10 years, you’ll want to choose an income-driven plan.

Forgiveness is granted based on the difference between the standard repayment and your income-driven payment amount. If you pay off your loan under a standard repayment option, there’s nothing left to forgive after 10 years.

Private student loan repayment options differ depending on the lender.

4. Learn your options for temporary payment breaks

After you’ve carefully weighed all your options, pick the repayment plan that you can afford now. You can postpone or take allowed breaks from payments by applying for forbearance or deferment.

If you meet the requirements, forbearance or deferment enables you to reduce your monthly payment amount or stop making payments altogether for a specific period.

You may not be responsible for paying the accrued interest on certain loans during the deferment period.

5. Consider private student loan refinancing 

Sometimes the best way to afford student loans payments is to lower your interest rate.

Student loan refinancing allows you to consolidate both federal and private student loans to lower your overall monthly payment.

However, you could lose federal student loan benefits such as student loan forgiveness and income-driven repayment plans.

So, before making a decision, consider the following pros and cons of refinancing.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks of student loan refinancing.

Pros
  • Only need to make one payment every month.
  • Could lower your payment.
  • Flexible payment terms.
  • Can qualify for great rates with good credit.
Cons
  • Can end up costing more if you extend the payment term too much.
  • You’ll lose your student loan grace period.
  • You’ll give up federal benefits.

Final thought on the student loan grace period

Student loan payments don’t have to be scary. Learn the details about your student loan grace period by contacting your servicer. You can find the contact number when you sign in to studentloans.gov.

Also, consider refinancing to reduce your interest rate. Find out if you qualify for student loan refinancing here.

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