Grace Period for Student Loans Is Ending, and Bills Are Coming Due
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New college graduates may not have been counting the months that have passed since those heady commencement ceremonies. But if they borrowed to finance their education, a bill is coming due.
Many student loans have a six-month grace period to give new graduates time to get a job and organize their lives before they must start repaying their loans. So for spring graduates, monthly billing statements typically begin arriving in November. (The grace period for one type of federal student loan, known as Perkins loans, is nine months, so those borrowers have a bit more time.)
Now is a good time for borrowers to take stock of their loans, if they haven’t already. “They need to make sure they know what they owe, and who their servicer is,” said Abby Shafroth, a lawyer with the National Consumer Law Center.
The servicer is the company that sends out statements, collects payments and otherwise manages the loans. Borrowers of federal student loans can visit the Department of Education’s student loan website to see a list of their loans and the servicer. (Borrowers with multiple loans may have more than one servicer.)
The federal website doesn’t list private student loans, made by banks and lenders other than the federal government. If you don’t have the original documents for private loans, call your college financial aid office for help, said Diane Cheng, research director at the Institute for College Access and Success, a nonprofit group.
Make sure, Ms. Cheng said, that your student loan servicers have your current address and contact information so you don’t miss any bills. Students sometimes use their college emails on loan applications, she said, but those can expire after graduation.
Federal borrowers can also use the Education Department’s student loan estimator, which will help calculate their total monthly payments.
If they don’t choose another option, borrowers are automatically enrolled in the standard 10-year repayment plan.
If this is too onerous for borrowers, they can request a temporary postponement of payments, or apply for longer-term help via alternative plans with lower monthly payments. Known as “income-driven” repayment plans, in government lingo, the alternative plans factor in borrowers’ income and expenses when setting monthly payments.
The repayment plans have slightly different criteria, but all can significantly lower the borrower’s monthly payments — in some cases to zero.
“There should be no federal loan borrowers in default,” said Natalia Abrams, executive director of Student Debt Crisis, a group that advocates for borrowers. The repayment options can be confusing, however, so borrowers may need to take some time for research.
“You are going to have to do some homework on your own,” Ms. Abrams said. In addition to repayment information on the Education Department’s website, Student Debt Crisis offers free help on its website.
The catch with alternative payment plans is that you may pay more over time. So borrowers should re-evaluate if their income rises and they can afford to pay more, said Will Sealy, co-founder and chief executive of Summer, a startup that aims to work with colleges and employers to help borrowers manage their student loans.
If you’re having trouble making payments, Ms. Cheng said, don’t ignore communications from your loan servicer. Even though it may feel awkward to talk about your situation, she said, it’s better to discuss alternatives than risk a default.
Here are some questions and answers about student loans:
Should I refinance my federal loans with private loans with lower interest rates?
Advocates for student borrowers urge caution about refinancing federal loans, which carry guaranteed consumer protections, like the right to postpone payments because of financial hardship and options for getting back on track if you default. Some private loans may offer initially lower interest rates, but they are often variable-rate loans, so payments can increase significantly when rates rise.
What should I do about interest that has accumulated during the grace period?
Consider paying it off in a lump sum if you can afford it, Mr. Sealy said. With many student loans, you don’t have to make payments during the grace period, but interest still accrues. If you don’t pay it off before formally entering repayment, that interest is added to your loan balance, meaning you’ll end up paying interest on the interest, adding to your total debt.
Can I reduce my interest rate with automatic loan payments?
Yes. Signing up for automatic deduction of your loan payments can help you avoid late fees and can qualify you for a small reduction — 0.25 percentage points — in your interest rate, saving a bit of money.
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