Lori Meadows
Student loans can be a great way to fund your education, but it's important to understand when and how you'll need to start paying them back. Federal student loans typically require repayment six months after graduation, dropping below half-time enrollment, or leaving school, with a grace period where interest accrues. Private student loans vary by lender, and it's important to understand their terms. Refunds from leftover loan money must be paid back with interest, so plan carefully. The US Department of Education's Federal Student Aid website is a definitive source for federal loan information, including balances and repayment plans.
| Characteristics | Values |
|---|---|
| When do I start paying off my federal student loans? | Six months after you graduate, leave school, or drop below half-time enrollment in school. |
| What about private student loans? | Your lender or servicer should inform you about when and how to pay your loan. |
| Do federal loans have a grace period? | Yes, most federal loans have a grace period during which you don't have to make payments. Direct Loans, Grad PLUS Loans, and Stafford Loans have a six-month grace period. |
| What about Parent PLUS loans? | Parent PLUS loans don't have a grace period, but parents can request a deferment while their child is in school and for six months after. |
| Where can I find information about my federal student loan balances and whom to pay? | The U.S. Department of Education's Federal Student Aid website provides definitive information. |
| What should I do towards the end of my grace period? | Decide whether to consolidate your federal student loans, determine your repayment plan, and consider enrolling in autopay. |
| Who do I make the payments to? | You will make the payments to your loan servicer, which you can find by accessing your StudentAid.Gov account. |
| How will my private student lender or servicer contact me about loan payments? | You may receive an email or a billing statement each month. Some lenders may also provide a "welcome kit" or a phone call. |
| What if I have leftover funds from my student loan after paying college costs? | You can choose to return the funds to lower your total loan cost or use the money for other school expenses, but you'll need to pay it back later with interest. |
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What You'll Learn
Federal student loans: Payments begin six months after graduation
For most federal student loans, you will need to start making payments six months after you graduate, leave school, or are no longer enrolled at least half of the time. This six-month period is known as a "grace period", during which interest will continue to accrue on your loan. Direct Loans, Grad PLUS Loans, and Stafford Loans (both Direct Subsidized and Direct Unsubsidized) all offer this grace period. It's important to note that Parent PLUS loans do not offer a grace period, and repayment must begin as soon as the loan funds are received. However, parents can request a deferment on these payments while their child is still enrolled in school and for six additional months after the child graduates or leaves school.
Perkins loans, which are no longer issued as of 2017, had a longer grace period of nine months. During the grace period, you have the opportunity to make important decisions regarding your loan repayment strategy. This includes consolidating your federal student loans, selecting a repayment plan, and considering enrolling in autopay.
To access detailed information about your federal student loan balance and repayment details, you can visit the U.S. Department of Education's Federal Student Aid website. This website will provide you with the most up-to-date and accurate information about your loan, including whom to pay and when payments are due. Additionally, if you're unsure about who your loan servicer is, you can find this information by accessing your StudentAid.Gov account.
It's important to be proactive in managing your student loan repayment process. Keep an eye out for communications from your private student lender or servicer, as they will typically reach out to you via email or mailed billing statements. Some lenders even provide a "welcome kit" or a phone call when you enter the repayment phase of your loan. Understanding the terms of your loan and staying organized will help ensure that you're well-prepared to begin making payments after graduation.
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Private student loans: Lenders share payment details
Private student loans are credit-based, meaning lenders will look at your history of borrowing money and paying it back. Before applying for a private student loan, it is important to research different lenders and compare their loan options. Key information to understand includes being aware of the annual and cumulative loan limits, interest rates, fees, and loan terms.
When applying for a private student loan, you will need to fill out basic personal information and, if you don't have a credit history, you may need a cosigner. A cosigner can be a parent, relative, or any other creditworthy individual. Along with you, the cosigner accepts responsibility for repaying your loan. It is important to make on-time payments to maintain good credit. After submitting your application, you will typically get a credit decision, and once approved, you will review, accept, and e-sign your loan terms. Your school will then certify your loan amount before it is disbursed.
There are a variety of private student loan options available, and you must research which option is best for you. You can choose from multiple repayment options, including no payments while in school. Some lenders offer more manageable payments, such as interest-only payments for a period after graduation. Additionally, some lenders provide access to your FICO® Credit Score and other benefits. It is important to evaluate all anticipated monthly loan payments and your expected future earnings before considering a private student loan.
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Grace periods: No payments, but interest accrues
A grace period is a set amount of time after your studies during which you are not required to make payments on your student loan. However, it is important to note that interest will continue to accrue during this time. This means that the interest will be added to the principal amount, resulting in a higher total loan cost. This process is called "capitalization".
For example, if you have an unsubsidized loan, interest will accrue during your grace period. While you are not required to make payments during this time, doing so can help you avoid unnecessary interest capitalization. This means that any payments made during the grace period will go directly towards reducing the principal amount, rather than being partially used to cover the accrued interest.
Similarly, if you have chosen the interest repayment option for your student loans, your interest should not capitalize, as you have paid it as it has accrued throughout your studies. However, if you are making fixed payments or deferring payments until after your studies, you may want to consider making small additional payments to reduce the total loan cost.
It is important to note that capitalization can occur at different points, such as the end of your grace period or the end of a deferment or forbearance period. By understanding how interest accrues and how capitalization works, you can make informed decisions about your student loan payments and potentially reduce your overall financial burden.
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Consolidating loans: Decide towards the end of your grace period
After graduating or leaving a college program, there is usually a waiting period before you need to start paying off your loans, known as the "grace period". This is typically six months long, but can be extended to three years if you are in the military on active duty. During this time, you do not have to make payments, but interest may accrue, depending on the type of loan. For example, with unsubsidized loans, interest will accrue during the grace period.
Consolidating your loans can be done during the grace period, but this will bring forward the repayment date, and you will lose any remaining grace period. Repayment will begin within 60 days of consolidating your loan. Therefore, it may be beneficial to wait until your grace period is about to end before consolidating your loans. This way, you can take full advantage of the grace period and avoid unnecessary interest capitalization.
However, there may be benefits to consolidating your loans earlier. For example, if you have multiple loans, consolidating them can simplify your finances and give you a single, fixed interest rate. Additionally, if you are applying for a one-time waiver, consolidating your loans during the grace period may be beneficial, as it could force them out of the grace period early, allowing you to take advantage of the waiver.
When deciding whether to consolidate your loans towards the end of your grace period, it is important to consider your financial goals and circumstances. If you can afford to make payments during the grace period, doing so can help you reduce the overall cost of your loan by avoiding interest capitalization. On the other hand, if you need a lower monthly payment or a longer repayment term, consolidating your loans earlier may be a better option.
It is always a good idea to carefully review the terms and conditions of your loans and seek advice from a financial professional before making any decisions regarding loan consolidation.
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Student loan refunds: Leftover funds after paying college costs
It is important to manage any leftover student loan funds wisely. While it may be tempting to hold on to extra money, it is crucial to remember that student loans are not free money and come with interest. Therefore, keeping the funds can become costly in the long run.
Firstly, you should only borrow what you need. Creating a budget before committing to a loan amount is a great strategy to avoid borrowing more than necessary. It is also a good idea to explore other sources of funds, such as scholarships, grants, and work-study opportunities, before taking out a loan.
If you do end up with leftover funds from your student loan, you have a few options. You can choose to return the excess money to reduce your total loan amount and the interest you will pay over time. Alternatively, you can use the funds to cover education-related expenses, such as books, a computer, food, housing, transportation, and other fees. Remember that these funds are intended to help with your total cost of attendance, so using them for living expenses or creating an emergency fund is also a reasonable choice.
Whatever you decide to do with leftover student loan funds, make sure to keep track of the total amount borrowed and estimate your monthly payments after graduation. This will help you manage your finances effectively and avoid a higher financial burden in the future.
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Frequently asked questions
For most federal student loans, you will start making payments six months after you graduate, leave school, or drop below half-time enrollment. For private student loans, your lender will inform you about when and how to pay your loan.
The U.S. Department of Education’s Federal Student Aid website is the definitive source for your current federal student loan balances.
Universities pay out about 10 days before the semester starts, and community colleges pay out about three weeks after the semester starts.
