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If you borrowed student loans to pay for college, you don’t have to pay them back until your student loan grace period ends, typically six months after you graduate. But what if you’re not able to find a job before your first student loan payment is due? Read on to learn more about this tricky situation and your options for dealing with it.
- Student loan grace period: the basics
- Job searching for new grads
- Student loan options
- Considering side gigs
- Taking action quickly is key
For most people who have student loans, there is a grace period after graduation. During this time, you do not have to make payments on your loans.
This period is designed to allow you to find a good job and get settled before making payments on your loans.
However, different loans have different grace period terms. Federal direct loans have a six-month grace period while Perkins loans have a nine-month period (but if you have a Perkins loan, check with your school to make sure).
Note that the Perkins loan program came to an end in September 2017, but the repayment terms and grace periods for those who already have a Perkins loan remain unchanged.
Some private student loans offer grace periods as well. But, the length of time can vary from lender to lender.
During the grace period, some loans will continue to build interest. That’s why it’s a good idea to make payments on the loan during the grace period if you can afford it. They will ultimately cut down the amount of interest you will pay over time.
When you first graduate, having six months before you need to make your student loan payments sounds pretty luxurious.
But in job search time, six months is not very long at all. The employment market is especially tough for fresh grads without experience. And depending on your field, it typically takes between three and six months to land your first job after school.
Job searching is hard work, and it can often be a full-time commitment. From scanning job listings to writing customized cover letters, it’s physically and mentally exhausting.
And there’s no guarantee of landing a job, which means you might still be unemployed and not making an income when your student loan grace period ends.
If your student loan grace period is over and you are still unemployed, do not panic. There are options that can help you, including deferment and forbearance, or working side jobs.
One option for anyone facing unemployment or financial hardship is deferment. This further postpones your student loan payments under certain circumstances.
Interest will continue to accrue on most student loans, except for subsidized loans. Economic hardship deferments can last for as long as three years, but they’re not automatic. You need to reach out to your lender to request a deferment.
Keep in mind that your lender may ask for documentation showing your lack of income, such as bank statements, as well as proof that you are looking for full-time employment.
Make sure you keep track of what jobs you apply for, along with copies of your cover letters as proof you’re searching for employment.
If you do not qualify for a deferment, you may be eligible for forbearance. Under this process, lenders postpone or reduce your payments for up to 12 months.
Just like deferment, your loans will continue to accumulate interest under a forbearance. This approach is an option if you are underemployed. Or, if you are only able to find part-time work and your pay does not cover your expenses, forbearance can help.
There are two types of forbearance: mandatory and discretionary. For a mandatory forbearance, if your payments are more than 20% of your income for up to three years, your lender has to grant you a forbearance. Other reasons, such as a medical residency or service in AmeriCorps, may also qualify.
Discretionary forbearance means your lender can make a decision on whether to postpone your payments after you make a request.
For some borrowers, the idea of postponing payments while interest continues to grow is hard to stomach. Some individuals, therefore, set out to make their monthly payments by combining multiple side gigs to make ends meet.
This approach may not be for everyone. But, it can be a good way to bring in income and pay down your debt while you search for a full-time job.
Side gigs typically have zero or low start-up costs and are scalable. When you need money, you can take on more jobs. When you are in better financial shape, you can ease up your schedule.
Whether it’s shopping for groceries, walking dogs or freelance writing, doing multiple side gigs can help fill your cash flow gap until you find a full-time job.
While the grace period for student loans gives you some wiggle room to search for a job, many new graduates find that six months is not long enough to find a well-paying position.
What’s more, borrowers often end up owing money on their student loans before they are employed.
If your loan payments are due soon and you’re still unemployed, do not wait for a collection notice. Reach out to your lender, explain your situation and ask for deferment or forbearance options.
This process can take several weeks, so the sooner you apply, the sooner you can find a solution. So make sure you take advantage of the last weeks of your student loan grace period to build a plan to manage your payments.
Rebecca Safier contributed to this article.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.
4 Important Disclosures for SoFi.
5 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of January 4, 2021. Information and rates are subject to change without notice.