Savanna Hoffman
Paying back student loans can be a daunting prospect, and it's important to know your options. For federal loans, you usually start repaying six months after leaving education, but private loans may require immediate monthly payments. Most federal loans offer a grace period, and some private loans offer a six-month grace period, too. During this time, interest will usually continue to grow. There are options to refinance your loan, which can make monthly payments more manageable, but this doesn't allow you to pause payments. Forbearance and deferment can help you pause or lower your payments, but interest will continue to accrue. Alternative repayment plans, such as income-driven repayment (IDR) plans, can also make payments more manageable.
| Characteristics | Values |
|---|---|
| When do people start paying back federal student loans? | Six months after graduating, leaving school, or dropping below half-time enrollment |
| When do people start paying back private student loans? | Varies by lender; some have a grace period, others require immediate repayment |
| What is the grace period for Perkins loans? | Nine months (no new Perkins loans since 2017) |
| What is the grace period for Direct Loans, Grad PLUS, and Stafford Loans? | Six months |
| What is the grace period for Parent PLUS loans? | None; repayment starts as soon as funds are received, but deferment is available |
| What is student loan forbearance? | A short-term solution that can pause or lower payments for up to 12 months; interest typically continues to accrue |
| What is student loan refinancing? | Getting a new loan from a private lender to pay off existing loans, potentially lowering interest rates and monthly payments |
| What are variable repayment plans? | Plans with fluctuating monthly payments due to shifting interest rates |
| What are income-driven repayment (IDR) plans? | Available for federal loans, these plans adjust monthly payments based on earnings |
| What is loan consolidation? | Merging multiple loans into a single loan with a fixed interest rate, streamlining payments and management |
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What You'll Learn
Federal vs. private student loans
Federal student loans are typically disbursed based on financial need and do not require a credit check. They usually have lower, fixed interest rates that remain unchanged for the loan's duration. Federal loans also offer protections such as income-based repayment plans and eligibility for loan forgiveness programs. Additionally, they often feature a grace period, during which borrowers are not required to make payments immediately after graduating, leaving school, or dropping below half-time enrolment.
Private student loans, on the other hand, are disbursed directly to the school's financial aid office and are based on credit checks and lender approval. Private loans can carry either fixed or variable interest rates, with the latter potentially changing over time. Private loans generally have higher interest rates than federal loans, and they lack the same safety nets and protections as federal loans. Private lenders may not be as accommodating when it comes to repayment plans, and they are not eligible for loan forgiveness programs.
The repayment timeline for both federal and private student loans can vary. For federal loans, borrowers typically start making payments six months after graduating, leaving school, or dropping below half-time enrolment. Private student loan lenders provide information on when and how to pay, and payments may be expected sooner after graduation or leaving school.
The time it takes to pay off a student loan depends on factors such as the loan amount, repayment amount, interest rate, and income after school. Federal loans may offer more flexibility with income-based repayment plans, potentially making them faster to pay off for those with lower incomes. However, for those with higher incomes and favourable interest rates, private loans could be paid off more quickly.
It is recommended to prioritise federal loans over private loans due to their lower interest rates and additional protections. Nonetheless, both types of loans can be utilised to cover school costs, and it is crucial to stay organised, understand repayment terms, and plan for repayment after graduation.
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Grace periods
A grace period is the waiting period between when you leave school and when you start making payments on your loans. Grace periods are typically six months, but they can vary depending on the type of loan and other factors. During this time, you are not required to make payments, but interest will continue to accrue, which can lead to interest capitalization.
For most federal student loans, such as the Federal Stafford Loan, Federal Direct Loan, and Federal Perkins Loan, the grace period is six months. This means that borrowers will start making payments six months after they graduate, leave school, or drop below half-time enrollment. However, it's important to note that Parent PLUS loans do not have a grace period, and parents must start repaying the loan as soon as the funds are received.
The Perkins Loan, which is no longer issued as of 2017, had a unique nine-month grace period. Additionally, if borrowers interrupt their initial grace period by returning to school and maintaining at least half-time status, they may be eligible for another grace period. This is also true for the Federal Perkins Loan, which grants a six-month grace period after any type of deferment.
To find out the specific grace period for your loan, you can refer to your loan promissory note or contact the lender directly. It's important to understand the terms and conditions of your loan, including any applicable grace periods, to effectively manage your repayment plan.
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Loan consolidation
For federal student loans, borrowers typically start repaying their loans six months after graduating, leaving school, or dropping below half-time enrolment. Private student loans may have different terms, and lenders should inform borrowers about when and how to pay.
There is no application fee for a Direct Consolidation Loan, and the interest rate is calculated as a weighted average of the prior loan rates, rounded up to the nearest one-eighth of a percent. It's important to note that consolidating federal loans through this method is generally not a money-saving option, as the interest rate is not reduced. However, it may provide access to additional income-driven repayment plans and Public Service Loan Forgiveness (PSLF).
To apply for a Direct Consolidation Loan, borrowers can follow these steps:
- Log in to the StudentAid.gov website and access the direct consolidation loan application. Gather the necessary documents before starting the application, as it must be completed in one session.
- Choose which loans to include in the consolidation.
- Select a repayment plan, either based on the loan balance or tied to income. If choosing an income-driven plan, fill out the additional form.
- Read and agree to the terms before submitting the form online.
- Continue making payments on the original loans until the servicer confirms that the consolidation is complete.
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Student loan refinancing
It's important to note that refinancing federal loans turns them into private loans, causing you to lose access to federal repayment programs and protections, such as federal income-driven repayment plans, economic hardship deferment, and public service loan forgiveness. Therefore, refinancing federal loans may not be the best choice for everyone.
To qualify for refinancing, you must meet certain eligibility requirements, such as having student loans totalling at least $5,000 that you used to fund tuition at an eligible accredited school where you were enrolled at least 50% of the time. Loans currently being used to fund education for actively enrolled students are typically not eligible for refinancing.
When considering refinancing, it is essential to compare lenders and look at interest rates (fixed vs. variable), repayment terms, and monthly payments. You may also want to consider any compelling benefits associated with your current loans, such as autopay discounts or loyalty rewards, that you may lose if you refinance.
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Loan forbearance
Generally, people start paying back student loans six months after graduating, leaving school, or dropping below half-time enrolment. However, this may vary depending on the type of loan and the lender. Some loans, like Parent PLUS loans, require immediate repayment, while others, like Perkins loans, offer a nine-month grace period.
Now, if you're facing financial difficulties and need a break from making payments on your student loans, you can consider loan forbearance. Here's what you need to know about loan forbearance:
Federal Student Loans:
If you have federal student loans, you can apply for forbearance through your loan servicer. Forbearance can be granted for up to 12 months at a time, and you usually need to make the request over the phone. During the forbearance period, interest will accrue on your loans, including subsidized loans. However, for Direct Loans, the interest will not be added to your principal balance.
Private Student Loans:
The terms of forbearance for private student loans vary depending on your contract and applicable laws. Contact your private student loan servicer as early as possible to discuss your options. The terms and fees associated with postponing payments may be less favourable than those offered for federal student loans.
Alternative Options:
Before opting for forbearance, it's worth considering other repayment options. You may be eligible for income-driven repayment (IDR) plans or deferment, where interest does not accrue during the deferment period for subsidized federal student loans. If you're struggling to make payments, enrolling in a payment plan that lowers your monthly payment could also be an alternative solution.
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Frequently asked questions
For most federal student loans, you start making payments six months after graduating, leaving school, or dropping below half-time enrollment. Private student loans may also have a six-month grace period, but some lenders require immediate monthly payments.
A grace period is a time after you graduate or leave school when you don't have to make payments. Most federal loans have a grace period, during which interest continues to grow. Direct Loans, including Grad PLUS and Stafford Loans, have a six-month grace period, while Perkins Loans have a nine-month grace period.
You can explore alternative payment plans, student loan refinancing, or apply for deferment or forbearance. Deferment and forbearance can pause or lower your payments, but interest typically continues to accrue.
Deferment usually requires meeting specific criteria, such as being enrolled in school, experiencing economic hardship, or serving in the military. Forbearance, on the other hand, can be easier to qualify for due to broader eligibility requirements like financial or medical issues.
