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Grace Period

Congratulations! You’re graduating soon and will be searching for your first job out of college. It’s an exciting time in your life. However, if you’re like the majority of college students, you’re also graduating with student loan debt. Now is a good time to make sure you’ve got a plan to manage your student loans after you graduate.

Here are some easy steps you can take to set yourself up to successfully manage your student loans.

First, Identify All of Your Student Loans

The best place to start is at the National Student Loan Data System (NSLDS). You can find information here about all of your federal loans. This will give you all the details you need to understand how much you’ve borrowed on your federal loans. You can also find out who to contact for questions about your federal student loans.

If you used private loans from a bank or other financial entity, check with your lender to make sure you have the correct loan information.

Next, Get an Idea of What Your Monthly Payments Will Look Like

At StudentLoans.gov you can access a repayment estimator for your federal loans that will give you an idea of what your monthly payment would look like under the different repayment plans available. Depending on your individual circumstances, it’s likely there is a plan that will work for you. If you have relatively low debt and a good salary, you may want to pay off your loans ASAP. The standard 10-year repayment term allows you the quickest and lowest cost method to pay off your loans.

If you have a higher debt load or lower income, there are options that base your student loan payment on your income. Income-driven repayment plans are often helpful since they give you a more affordable monthly payment based on your income. You can learn more about these options as well as how to apply them to your student loans at StudentLoans.gov.

For private loans, visit your lender’s website to access repayment calculators. Or, simply contact your private loan provider for additional information on what monthly repayment amount you can expect.

Know When Your First Payment is Due

With federal loans, you have the ability to postpone payments while you’re enrolled in school at least a half-time. This is also true of some private loans. That means you’ve probably not made any payments on your loans, or perhaps you’ve made some small payments to offset accruing interest. You are also given a grace period on your loans. The grace period is typically six months from your last day of school. The last day is usually considered when you graduate or have dropped below half-time enrollment. At the end of that grace period is when your first payment will be due. Make sure you know when that due date is. That will give you plenty of time to prepare and budget for that new payment.

Know Your Options if you Have Difficulty Making Payments and Need Assistance

There are a number of options for borrowers who encounter situations that make it difficult to manage their student loans. Your student loan servicer will work with you to find a solution, but you have to contact your servicer to get assistance. For example, if your income has changed dramatically you might want to change to an income driven repayment plan or adjust the plan you’re on based on your change in income. Additionally, if you return to school, to pursue a graduate degree for example, you can postpone (or defer) your student loans while you’re back in school. Don’t make the mistake of simply ignoring your student loan payments and damaging your credit score.

As you look forward to graduation and starting a new chapter in your life, just remember to do a little planning and research how to best manage your student loans and find the best repayment plan for your situation. And remember, your student loan servicer is there to help you if you have any questions.

If you borrowed student loans to help pay for college, you may not be required to make any payments until after you graduate or drop below half-time enrollment. That sounds like a pretty good deal; no payments and no worries while you focus on your studies. But remember, if you take out a federal Direct Unsubsidized Loan, a federal Direct PLUS Loan, or a private loan, interest accumulates during those months (or years) you’re in school and not making any payments. Here are some ways you can save on your student loans while you’re still in school.

Accruing Interest

Interest that accrues on your student loan will typically be capitalized when you begin repayment. That means any accrued interest during those months you are not making payments is added to the original principal amount of your loan. For instance, if you borrowed a $15,000 student loan with an interest rate of 6% as a freshman and made no payments for the four years you were in school, plus your grace period, 51 months would have passed. In this scenario, when you begin your repayment period, you would actually have a balance of $18,825 when you start repaying your loan 51 months later. That’s because $3,825 in interest (also known as capitalized interest) would have accrued during those 51 months and was added to your original loan amount.

In-School Payments Can Help

Now, let’s say you have a part-time job while you’re in school, working 15-20 hours a week to help with some of your expenses. If you could simply pay around $75 a month toward that $15,000 student loan, you could actually pay all the accruing interest (remember, that’s $3,825 total that would have been added to your loan when your first scheduled monthly payment is due). If you’re able to pay $75 towards your student loan’s accruing interest, the total cost you could ultimately save over the life of a 10-year repayment period would be nearly $1,300.

Example

Paying Interest While In School (No Capitalized Interest) Fully Deferred Payments While In School – No Payments (Capitalized Interest)
Original Loan Amount $15,000 $15,000
Interest Accrued During In School and Grace Period (51 months) $3,825 $3,825
Interest Paid During In-School and Grace Period $3,825 $0
Loan Amount When Entering Repayment $15,000 $18,825
Number of Months of Repayment 120 120
Monthly Payment $166.53 $209
Total Interest Paid on Loan (including any payments during in school and grace period) $8,808.60 $10,080
Total Paid on Student Loan (original loan amount plus interest) $23,808.60 $25,080

As you can see from this example, making interest payments while you’re in school and during your grace period can help you save on your student loans down the road. Plus, making payments during your in-school and grace period also gets you in the habit of making payments on your student loan and better prepares you for successful repayment. Remember, this is just an example of borrowing one loan during your freshman year of college. Imagine what the capitalized interest could look like if you borrow each year of college, or what your savings would be by making continued interest payments while you’re in school. You can learn more ways to save on your student loans and get additional helpful information by visiting our student loan resources.

You may have heard about private student loans. Some information about private loans is like a Bigfoot sighting. There are a lot of stories, but they often aren’t based on facts. In this article, we’ll look at each private loan myth and give you the facts.

Private Loan Myth #1: Private Student Loans Only Offer Variable Interest Rates

One of the most common myths about private student loans is that they’re only available with riskier variable interest rates. In reality, most private loan providers offer borrowers a choice between a fixed interest rate and a variable interest rate. Depending on your individual circumstances, one may be more appealing than the other. Read more about choosing a variable or fixed interest rate to see what important factors should be considered when choosing your type of interest rate. Additionally, highly qualified borrowers can likely find private student loans with low interest rate options.

Private Loan Myth #2: Private Student Loans Have High Origination or Application Fees

The reality is that most private loan providers currently charge NO upfront fees, also known as origination or application fees. There is no fee to make extra payments or to pay off loans early. Although most loan providers offer loans with no upfront fees, research your options. Be sure to verify any fees or charges associated with loan products.

Private Loan Myth #3: Private Student Loans Require Immediate Repayment While You are Still in School

As a borrower, you have various repayment options offered by different private loan providers. Most lenders have an option to delay or postpone payments while enrolled at least half-time. They also offer a six-month grace period following your graduation or last date of at least half-time enrollment. This gives you the option to not make payments while enrolled in school as long as you are enrolled on at least a half-time basis. This can give you some added flexibility while you are focused on your studies. However, if you can make payments in school, even if only the accruing interest, you can save money and keep your loan costs lower. You can find additional ways to save money on your student loans here.

Private Loan Myth #4: Private Student Loans Have No Deferment or Forbearance Options if You Have Difficulty Making Payments

Most lenders offer options to postpone payments if you encounter some type of financial hardship. (You may want to check to be sure.) Most private loan lenders provide a hardship forbearance to temporarily postpone payments if you find it difficult to make payments.

Many private loan lenders also offer deferments. Deferments can postpone payments for certain circumstances. These circumstances include returning to school, having an internship or residency, or during other approved events. Again, check with your private loan lenders to see what options are specifically available.

Private Loan Myth #5: Federal Student Loans are Always Cheaper than Private Student Loans

As a general rule, explore your federal student loan options first before taking out any private loans. Federal student loans will typically provide you a greater degree of flexibility with repayment options and various forgiveness provisions. You can read a good overview of federal and private student loans here.

However, many private student loans can have interest rates as low as or even lower than federal student loans. Federal student loans also have a nominal origination fee charged to borrowers. As discussed earlier, most private loans do not have any origination or application fees. Several lenders now offer private loans designed specifically for parents for their students’ educational expenses. Parents find these loan options often have lower interest rates compared to federal Parent PLUS loans.

We hope you have a better understanding of private student loans and are better equipped to make informed decisions regarding your education financing options. Research your options to find what works best for your individual circumstances and don’t believe every myth you hear. But, if you happen to see Bigfoot in the cafeteria on campus, snap a pic. You just might be able to sell it and pay off your student loans!