Your student loan grace period is like spring break for your loans. There’s nothing you need to worry about during this time, and barring other concerns, your financial life should be fairly stress-free. But once the period ends, reality sets in.
The end of your grace period means that it’s time for you to begin repaying all of that money you borrowed. Though no one looks forward to paying off loans, planning the repayment of your student loans now can make your life easier later.
With the grace period set to expire this month for 2015 college graduates, it’s time for student loan bills to start rolling in.
Before you curse the end of your grace period, here are a few tips to make the transition easier and less stressful.
1. Check whether you can further postpone payments
Typically the student loan grace period ends six months after the student’s attendance at college dropped below half-time. For grads, this period begins six months after completing their degree.
Yet, some grace periods don’t end after six months. In certain situations, you can put off payments longer.
Generally, if you return to school at least half-time before your grace period ends, then your loan clock is reset. You won’t need to make payments while you’re taking classes, and you’ll get a new six-month grace period once you graduate or drop below half-time attendance.
If you’re on active military duty, then you also get a break. If you’re called to duty to serve more than 30 days, then you’ll get another six-month student loan grace period once you return.
If neither of these situations applies, then you might still have other options. Your best bet may be to request deferment or forbearance on your loans.
Keep in mind, however, that even if you are allowed to put off payments, you might not want to or simply shouldn’t. No option makes student loans disappear, and some even add to the balance you’ll ultimately owe.
2. Set up your repayment system
Paying back student loans can be confusing, especially if you have statements flying in from all over the place. Believe me: I hate trying to keep track of bills as much as you do. Why not make it easier on yourself?
One way to do that is to track all of your student loans from one place. I’m biased, of course, but you can do that for free with a Student Loan Hero account.
It’s easy to set up, and it can spare you the frustration of handling all of your loans individually. Student Loan Hero even explains how you can save money on your loans, which will help you to pay them off more quickly.
Once you’ve organized your loans, figure out the best strategy for repaying them. Should you sign up, the Student Loan Hero dashboard can even guide you through options for actually paying off your loans.
One popular strategy is to make automatic payments. Instead of manually paying each bill each month, it’s easier to set them up on autopilot. Plus, some federal student loan services will reduce your interest rate by 0.25%. Though it’s not much, it’s free money. Why not take it?
3. Think carefully about consolidation
By now, you’ve probably heard about federal loan consolidation. Though it can be a good strategy, you should know a few things before opting to consolidate.
Consolidation takes all of your loans and groups them together. Interest rates are averaged based on the balances of each loan, meaning that you’ll ultimately pay the same interest whether you consolidate or not. The chief advantage of loan consolidation is paying only one bill instead of many.
So, when shouldn’t you consolidate? Specifically, if you 1) have loans with different interest rates and 2) plan to pay more than the minimum payment each billing cycle, then consolidation may cost you. Since you won’t be able to pay off loans with the highest interest rates first, you won’t save any money on interest.
Keep in mind: once you consolidate, it can’t be undone. Choose wisely.
4. Take a look at your interest rates
There are only three ways to save money while repaying student loans:
The popular option for reducing interest rates is to refinance with a private lender. Current rates are as low as 2.54% APR, but you must qualify. Want to learn more? Check out the questions to ask before refinancing student loans.
Increasing payments without refinancing or consolidating can be a great option for paying off loans faster while saving money. As mentioned above, your best bet is to pay off student loans with the highest interest rates first.
For example, let’s say you have three loans:
Loan 1: $8,000 balance at 11% interest
Loan 2: $6,000 balance at 3.5% interest
Loan 3: $5,000 balance at 6.8% interest
Since every month you’re charged the most interest on Loan 1, you should pay that loan off as soon as possible.
To do this, make the minimum payments on Loans 2 and 3 each month, and put everything else toward Loan 1.
Once Loan 1 is paid off, pay the minimum on Loan 2 and put everything else toward Loan 3.
By following this strategy, you’ll save the most interest possible on each subsequent payment. Just make sure that your servicer knows to apply extra payments to the principal balance and not to future payments.
5. Don’t skip payments
If you have a loan, one of the worst choices you can make is to skip a payment. It’s a bad decision for a variety of reasons including:
- You can end up defaulting on your loan, which can mean that your loan becomes a case for collection agencies.
- Charges can be added to your balance. Not small ones, either. Think up to 40%.
- You can ruin your credit score. Late payments and loans in default will cripple your credit score. Trust me: Future you will not be happy when he or she gets turned down for an auto loan or mortgage.
Remember that there are nearly always options. Though I’ve explained popular ways to begin paying off your loans, don’t forget that forbearance and deferment are alternative options. When in doubt, call your servicer to see what help is available.
What will be (or was) your first step when your student loan grace period ended?
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