Here’s What You Do When the Grace Period Ends and You’re Unemployed

student loan grace period

If you graduated in May, your student loan grace period is coming to an end. That means you’ll need to start making payments on your student loan debt.

But for many people, job searching can take months, and you may not have a full-time career yet. If you have not found employment and your loan payments are due, learn about what options you have to manage your loans.

What’s a student loan grace period?

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 Stafford loans have a six-month grace period.while Perkins loans have a nine-month period.

If you had a Perkins Loan, you have a nine-month grace period. 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 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.

Job searching for new grads

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 can take between three and nine 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.

Thousands of new graduates are still unemployed by the time their student loan grace period ends. In fact, 5.6 percent of college graduates from the Class of 2016 do not have jobs, according to the Economic Policy Institute.

Student loan options

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.

Deferment

One option for anyone facing unemployment or financial hardship is deferment. This further postpones your student loan payments under certain circumstances.

Deferments are eligible for some federal student loans, including Perkins Loans, Direct Subsidized loans, and Stafford loans. Although interest continues to accrue during the deferment, your lender puts your payments on hold.

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.

Forbearance

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 percent of your income, your lender has to grant you a forbearance.

Discretionary forbearance means your lender can make a decision on whether to postpone your payments after you make a request.

Side gigs

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.

Take Action

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 are still unemployed, do not wait for a collections 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.

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