Savanna Hoffman
After graduating or withdrawing from a college program, students usually benefit from a grace period of about six months, during which they are not required to start paying off their loans. This period is designed to give borrowers time to get their finances in order before loan payments start. However, it is advisable to start saving extra cash during this period to make the first payment easier. Additionally, it is worth noting that some private loan servicers offer an interest rate discount for those who sign up for automatic payments before the grace period ends.
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What You'll Learn
Organise your loans
The first step in organising your student loans is to list all the details of your loans in one place. This includes the principal balance, interest rate, loan term, first payment deadline, servicer, payment, and respective customer service contact information. You can use the studentaid.gov website to track down all your federal student loans and their corresponding servicers. For private student loans, you can pull your annual credit report for free through annualcreditreport.com. This will help you understand the specifics of each loan and make informed decisions about repayment.
Next, confirm which loans come with a grace period and how long this period is. Grace periods typically last six months, but they can vary depending on the loan provider and your circumstances. For example, if you are in the military on active duty, the grace period can be extended for up to three years. Knowing the grace period for each loan will help you plan your repayment strategy.
If you have both subsidized and unsubsidized loans, you can choose to make payments only on your unsubsidized loans during the grace period. This strategy can reduce the overall interest accrued on your loans. However, if you prefer not to start paying off your loans early, focus on saving extra cash to make those initial payments more manageable. You can also explore whether your employer offers a student loan repayment assistance program as an employee benefit. Taking on a side gig is another option to consider, as it can provide bonus income to put toward your loans.
Finally, consider signing up for automatic payments before the grace period ends. Many private student loan servicers offer an interest rate discount for borrowers who enrol in Auto Pay. This can result in significant savings over the life of your loan. Automatic payments also ensure that you never miss a payment deadline, helping you build your credit score for future loan opportunities.
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Understand grace period length
Grace periods typically last six months, during which you don't have to make any student loan payments. This period begins right after you graduate or leave school. If you are in the military on active duty, you may be eligible for an extended grace period of up to three years.
Grace periods provide a window of opportunity to get your finances in order before regular loan payments commence. It is advisable to start saving extra cash during this period to make your initial payments more manageable. Additionally, consider signing up for automatic payments to take advantage of potential interest rate discounts and ensure timely payments, which can positively impact your credit score.
The length of the grace period can vary depending on the type of loan you have. For instance, Earnest private student loans offer a nine-month grace period, which is three months longer than the industry average. Federal loans, such as Graduate PLUS and Parent PLUS loans, are generally not eligible for a grace period. However, you may request a deferment for a specific period after you or your child leaves school.
It's important to understand that consolidating your loans may result in losing any remaining grace period. Payments on consolidated loans are typically due within 60 days of consolidation. Therefore, it is recommended to wait until your grace period is about to end before consolidating your loans.
To summarise, the grace period length is typically six months, but it can vary depending on your loan type and circumstances. This period offers a chance to prepare financially before regular loan payments begin. Using this time wisely by saving and organising your finances can help ensure a smoother repayment process once the grace period ends.
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Explore investment options
Deciding whether to pay off student loans or invest depends on your financial goals and which option gives you a better return. If you have other debts, it is always good to pay them down as much as possible before interest starts to incur. If your student loans are your only debt, it makes sense to pay what you can while rates are still at 0%.
If you desire to become debt-free quickly, putting your extra money toward removing student debt is ideal. On the other hand, investing could be a better option if your expected rate of return is higher than your student loan's interest rate or if you want to work on your financial security. If your budget allows, you could also choose to do both.
- Investing in a 401(k) or an IRA early in your career can help set you up for long-term financial freedom by giving your retirement savings time to compound.
- If your employer offers a 401(k) match, take advantage of it. In 2022, 83% of employers provided some kind of 401(k) match, which can help boost your retirement savings.
- If you have a solid financial foundation with money left over each month, you may want to use your extra funds to save more for retirement.
- If your student loan payments are taking up a large portion of your monthly budget, you might consider refinancing. Replacing your current debt with a brand new loan at a lower interest rate should enable you to reduce your monthly loan payments, decrease the interest you'll owe, and pay off your debt more quickly.
- If your loans have a relatively low-interest rate (below 6%), it may make sense to put more of your money towards investing rather than paying off more of your loan.
- Certain investment accounts have flexible withdrawal rules if you need liquid funds. However, investments come with the risk of losing money, and returns are not guaranteed.
- Explore Public Service Loan Forgiveness. If you're employed by the government or a not-for-profit organization, you can apply for the PSLF program, where certain careers (such as a teacher, nurse, or police officer) can have their federal loans forgiven after making 120 qualifying monthly payments.
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Prepare for monthly payments
The end of your grace period means you'll need to start making monthly payments on your student loans. Here are some tips to help you prepare:
Get organized: Start by listing all your loan details, including the principal balance, interest rate, loan term, first payment deadline, servicer, payment amount, and respective customer service contact information. This will help you understand the specifics of each loan and keep track of multiple loans. You can use the studentaid.gov website to track down federal student loans and their servicers, while private student loans will be listed on your credit report, which you can access for free once a year through annualcreditreport.com.
Understand your grace period: Confirm which loans come with a grace period and how long it is. Grace periods typically last six months, but they can vary, and certain circumstances may extend them. For example, active military duty can extend the grace period for up to three years. Understanding when your grace period ends is crucial, as you don't want to miss the first payment.
Save extra cash: If you don't want to start paying off your loans early, focus on saving money to make those first payments more manageable. Consider taking on part-time work or a side gig to boost your income. You can also explore whether your employer offers a student loan repayment assistance program as an employee benefit.
Consider your debt and investment strategies: If student loans are your only debt, it's generally advisable to pay them down as much as possible before interest starts accruing. However, some suggest investing your money instead, as it could provide a higher return, especially if you can take advantage of a higher interest rate. Weigh the risks and potential gains of investing versus paying off your loans early.
Sign up for automatic payments: Many private student loan servicers offer a 0.25% interest rate discount for borrowers who sign up for Auto Pay. This can result in significant savings over the life of your loan. Automatic payments also ensure that you never miss a payment, helping you build your credit score for future loan opportunities.
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Sign up for automatic payments
If you want to make your student loan payments automatically each month, you can sign up for Auto Pay with Edfinancial Services, a servicer for Federal Student Aid (FSA). Auto Pay allows you to make your student loan payments by automatically deducting them each month from a checking or savings account that you designate. This payment option is convenient as it allows you to make timely payments without having to mail in payments each month or log into your online account to make the payments yourself. While your account is in active repayment and enrolled in Auto Pay, you will receive an interest rate reduction of 0.25%.
To register for Auto Pay, access your online account. If you haven't already, you will need to create an account. Once you have logged in, you can select “Auto Pay” from the left navigation menu. By default, Auto Pay will be set to pay the minimum payment on each of your loans. If you would like to pay more, you can enter the additional amount to be debited for whichever loan you want to pay down faster. Note that you may only set up Auto Pay to pay more than a loan's minimum monthly payment if the loan is not currently on an Income-Driven Repayment (IDR) plan. If your loan is on an IDR plan, you can still pay more by making a manual payment at any time.
You will be notified by mail or email of the date on which Auto Pay will begin drafting. This date depends on your current monthly due date and the date you sign up for Auto Pay. Your loan may be placed on forbearance until your first payment is scheduled to draft. Note that your payment will only be drafted if your account is in repayment and will not be drafted if your account is in a deferred status. In most situations, a General/Hardship Forbearance will be placed on your account to bring it current prior to the first Auto Pay debit. However, you will not be eligible for this if you have exhausted the maximum of 36 months of forbearance time.
You can cancel or make changes to Auto Pay at any time by logging into your online account.
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Frequently asked questions
A grace period is a waiting period between the time you leave school and the time you start making payments on your loans. Grace periods are typically six months, but they can vary depending on the type of loan and your circumstances.
It's a good idea to get your finances in order and start saving extra cash to make your first payments easier. You should also get organised by listing all your loan details in one place, including the principal balance, interest rate, loan term, first payment deadline, and servicer information. Signing up for automatic payments before the grace period ends can also help you stay on top of your payments and build your credit score.
It depends on your financial situation and goals. If your student loans are your only debt, it is generally a good idea to pay them down as much as possible before interest starts accruing. However, if you have other higher-interest debts, you may want to focus on paying those off first. Additionally, investing your money during the grace period could be an option if you want to grow your money and make a lump-sum payment before the grace period ends.
