After College: Use Your Grace Period Wisely

IMG_6400Hey college graduate, did you know they call it “commencement” because so many other things begin once you earn that degree? If you borrowed to pay college costs, your student loan “grace period” is one of those things.

A grace period is something the government gives so you have time to get your finances organized before you must start repaying your federal student loans. For Federal Direct Loans borrowed by students it goes for 6 full months from the day after you stop being enrolled half-time. It runs 9 full months from this date on Federal Perkins Loans.

Notice the reference to full months. For every loan you owe that hasn’t used up its entire 6 or 9 month grace period, you’ll get a full new grace period when you next drop below half-time.

Federal Direct Parent PLUS Loans don’t get grace periods but, working their loan servicers as listed in their National Student Loan Data System (NSLDS) records, parents can defer payment while their students are in school and for 6 months after the students for whom they borrowed drop to less-than-half-time.

A lot happens during your grace period . . .

  • Your loan servicer sends you notices about your first payment due date andIMG_6401 choosing your repayment plan options — stuff you really need to know. So keep your servicer apprised of any changes in your email and mailing addresses. You can find its contact information on NSLDS.
  • You’ll get these notices 60 or more days before your first payment due date. Use those 60 + days to set up a monthly budget including amounts for your loan payments.
  • Interest accumulates on any Federal Direct Unsubsidized Loans you have and, when your grace periods end, outstanding interest is capitalized — added to principal — inflating the amount on which future interest is charged.
  • Payments aren’t required during grace periods, but they’re not prohibited, either. Whenever you can afford to make a payment, send a note with it directing your servicer to apply it first to your outstanding unsubsidized loan interest. Anything left will be used to reduce your loan principal.
  • Institutional, private, and state student loans may or may not have grace periods of varying length. To check this out, review these loans’ promissory notes.

But no matter what loans you have, use your grace period wisely to prepare for making monthly payments on them when that period ends.

Need advice on managing your college debt? College Affordability Solutions has 40 years experience on this subject. Contact us at (512) 366-5354 or collegeafford@gmail.com if we can help you.

A Year of College Affordability Solutions

College Affordability Solutions is dedicated to helping families keep higher education spending within their means. It uses this website to highlight postsecondary educational cost-management strategies at the times of the year when you and/or your student are most likely to need them.

21-of-the-most-beautiful-college-campuses-in-amer-2-20243-1428837186-9_dblbigDespite those who’ll try to talk your student out of college, postsecondary education is still worthwhile even if he or she has to borrow to pay for it. But student loans increase the cost of college, so do everything possible to minimize their use.

Over the last year, we’ve covered several approaches to keeping college and college-related debt affordable. Click on any of the links below to learn more . . .

Before College

Various investment and savings programs can help you prepare for college bills. Among these are 529 plans and college savings bonds, but you should explore them all – the sooner the better.

And be sure to apply for financial for every year of college. Complete the Free Application for Federal Student Aid (FAFSA) as soon as possible after October 1 but, by all means, before your FAFSA priority deadline arrives.

Student dependency status plays a big role in who completes the FAFSA. Other family factors do, too. But it isn’t as hard to complete as you’ve heard, especially if you fulfill 5 key steps, gather all the documents you need, and get answers to your last-minute FAFSA questions before doing so.

Long before the FAFSA, your student needs to begin aggressively searching for scholarships. It’s critical to know about the when and where and the how of doing this.

Pay close attention after you file your FAFSA to make sure you handle what happens next. Then carefully assess your financial aid offers as they arrive from colleges.

But it’s not all about financial aid and scholarships. A critical factor in college affordability is for your student to enroll in a college and major that fits him or her well.

During College

Once college begins, you can help your student keep his or her expenses within reason.140815_FF_BestCollegeCard Limited spending and indebtedness is important even with today’s low college loan interest rates.

Some of the most effective strategies for minimizing student borrowing include your student getting through college in 4 years or less while carefully managing money and avoiding rip offs such as the recent “student tax” scam. A little-known but highly-effective cost-saver involves returning unneeded federal loan dollars with 4 months of disbursement.

Help your student keep college more affordable by giving him or her some holiday gifts that’ll lower his or her reduce expenses upon returning to school and by recommending he or she generate funds through seasonal employment instead of borrowing.

After College

Seven out of 10 students borrow before earning their degrees, and over 90% of their loans come from federal loan programs. Fortunately, the government has designed  post-graduation strategies to help keep educational debt manageable.

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Your student needs to understand what happens to college loans after graduation. It’s worthwhile to consider the pros and cons of student loan consolidation, an often-used tactic for reducing monthly debt payments. Equally important is knowing how your student might qualify for forgiveness on all or part of what he or she owes.

Coming in 2017

We’re taking a few weeks off for the holidays, but beginning January 4 we’ll start publishing again about plans for keeping college affordable. Here’s hoping you have the happiest of holiday seasons, and that you’ll rejoin us then!

 Find out more about College Affordability Solutions and its services at https://collegeafford.com, or by calling (512) 366-5354.

Federal Student Loan Consolidation Disadvantages

Consolidating your federal student loans has many advantages. There are also some disadvantages to be considered before making the choice to consolidate:

(1) You May Pay More in the Long Run: Consolidating generally lowers your monthly thrm34yz8xpayments by giving you extra years to repay. But the longer you take to repay, the more of your lifetime income that goes to repayment.

The “Total Amount Paid” column on your Federal Student Loan Repayment Estimator can show how much you’ll on your loans and consolidated versions of your loans.

On the other hand, federal loans may always be prepaid without penalty, and paying your debt down faster than required will reduce your total amount paid.

(2) No More Perkins Cancellation/Discharge: If you consolidate Federal Perkins Loan debt, your access to the Perkins Loan Cancellation and Discharge programs goes away. These programs write off all or part of your Perkins debt in return for working in certain occupations, with a portion of the debt written off annually. These programs are the surest way to have student debt cancelled or discharged so, if you borrowed Perkins Loans, think carefully before consolidating them.

(3) Monthly Payments Could Start Earlier: Normally, federal student loan payments aren’t required during a 6-month grace period that begins when you graduate, withdraw, or drop below half-time enrollment. But consolidation repayment starts 60 days after the loan is made. If you’re applying for consolidation before your grace period ends, you may keep the full period by asking for repayment to be delayed until that period ends.

(4) Federal Loans Only, Please: State and private education loans aren’t eligible for federal consolidation. And, oh yeah, you’ll need to resolve any federal loan defaults you might have before you may consolidate them.

(5) Beware of Private Consolidations: Banks and other financial services companies can page_federal_versus_privateconsolidate your federal student loans, but you probably don’t want them to. Why? You’ll likely lose all or most of the benefits of borrowing from the government. Check this out carefully before you even consider private consolidation.

(6) For Your Loans Only: A borrower may only have his or her own federal loans consolidated. This means students and parents cannot consolidate their federal educational debts, nor can spouses.

(7) All Consolidations Are Final: You can’t reverse the process. Once a Federal Direct Consolidation Loan pays off your other federal student loans, those debts no longer exist.

Despite these drawbacks and limitations, there are lots of advantages to consolidating federal student loans. Don’t take a pass on consolidation before reviewing them.

 College Affordability Solutions can help you better understand the pros and cons of federal student loan consolidation. Call (512) 366-5354 or email collegeafford@gmail.com.

Hey Graduate! What’s Next for Your Student Loans?

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College commencement was fun, wasn’t it? It’s the only time in higher education when we celebrate academic achievement with all the gusto of a football victory. But if you borrowed while getting that degree, it was also when your student loan repayment process commenced. So, what happens next?

(1)  When does your repayment obligation begin? You get a full six-month “grace period” to find a job and get yourself established financially before you’re required to start repaying your federal student loans. A loan servicer hired by the government to collect your loans will contact you during this period to share vitally important information with you. This includes the exact date your first payment is due — generally within 60 days of the end of your grace period.

Private educational loans may or may not have grace periods. Review the “promissory note” you entered into with your private loan provider for anything you need to know about repayment including your first payment due date. If what you’re looking for isn’t there, contact your loan provider and ask.

(2)  When do your payments start? Virtually all student loans require once-a-month payments on the same date of each month. If the repayment date assigned to you doesn’t work, contact your loan servicer. Servicers will usually renegotiate this date upon request.

(3)  What do you need to do? Any time you move to a new address, or begin using a new email service, provide your loan servicer with your new contact information. Otherwise, information you need to repay your debt won’t reach you. But that won’t absolve you of your payment obligation and, if you begin missing payments, bad things happen to you!

(4)  What decisions do you face? Your biggest decision is your choice of repayment plans. The government offers six options. Its standard plan is the quickest and least expensive way to eliminate college debt. It requires you to repay your loan in 120 equal monthly installments. But what if those monthly payments are too high early in your career, when you’ll probably earn the least you’ll ever earn? Then you should request one of the income-driven repayment plans that limit your monthly payments to a small percentage of your earnings. Such a plan will cost you more in the long run, but it’ll minimize your monthly payments early on. And remember, you can change your repayment plan whenever you want.

You may also need to consider whether you want to consolidate your federal loans in order to qualify for the lowest possible payments and the longest possible repayment period. This can be especially helpful if you are interested in having what’s left of your debt forgiven after 10 or 20 years.

There’ll be more on repayment plans and loan consolidation in the future. For now, congratulations on earning that degree and getting on the road to jettisoning your educational indebtedness!

Up next — how to get your federal student loans forgiven.

College Affordability Solutions has 40 years’ experience in advising borrowers on how to manage their parent and student loans. Call (512) 366-5354 or email collegeafford@gmail.com for help.