4 Things To Do Before Your Student Loan Grace Period Ends

After graduating from college, most graduates get a six month breather before having to make loan payments.  Many individuals desperately need this time to find a job or attain a higher paying job now that they have a new undergraduate or graduate degree under their belt.  Those six months should be used very wisely as it’s the only grace period they will get on those loans.  Of course, the time will go by quickly and the last thing you want to do is miss your first payment, and you'd be surprised at how many people do.

Here is a list of four important things to do before the grace ends:

1.  Make sure all of your loan servicers have your up-to-date contact information if you moved.  If you don’t know who is in charge of your account, go to www.nslds.ed.gov to look up your loan servicer information.

2.  Confirm all your loans have a grace. Certain loans, such as Grad Plus loans, don’t come with a grace. Also, if you ever dropped below half time enrollment for any period of time you may have already used some or all of your grace period on some of your loans.

3.  Make sure the payment plan your loan servicer has you in is the one you want to pay on when you do start paying the loan back.  Typically the loan servicer will put you in a standard plan but most people should be in the IBR or PAYE (pay as you earn).  These particular plans offer lower payment potential and additional benefits such government subsidy (payments towards your interest from the government) and forgiveness opportunities.

4.  Set up auto-debit before the first payment is due.  Setting up auto-debit may help you gain the likely discount of .25% off the interest rate, as well as ensure that your first payment is not late.

Did you know your interest is capitalized when your grace ends?

If you are not familiar with the term capitalization, it's an important concept to learn.

 Capitalization means that whenever your status changes, the lender adds any interest that has been sitting off to the side onto your balance.  This happens when you go from a grace to repayment status, a repayment status to a deferment status, and any other time your status changes.  If you went straight through school with no breaks, your interest amount may be a lot higher than you think.  This interest will be added to your balance and your loan payments will be based on this new balance.  Since there is still time left before the interest capitalizes, you may want to consider paying the interest owed before you enter into repayment status.  Here is an example of what you can expect:

Before Capitalization:

Balance: $20,000

Rate: 6.8%

Payment: $152.67

After Capitalization:

Balance: $22,899.42

Rate: 6.8%

Payment: $174.80

This is a monthly payment increase of $22.13; a yearly increase of $265.56 and a $5,311.20 higher payment over the life of the loan.

As you may know, you will not necessarily have to make the standard payment shown above if you qualify for the IBR, ICR or PAYE plan.  These plans allow your payments to be based on your discretionary income rather than the balance and rate of the loan.

  Many people qualify for a reduction of some sort even if it means utilizing a graduated (interest only) payment for the loans.  To learn more about these different payment plans go to Our Blog

Student loan debt has become a major problem in the U.S. leaving many people crippled by the monthly payment, but there is help out there.  Degrees of Success can assist you in all your student loan management needs.  For more information, please visit www.studentloanmanagement.info

Genevieve Dobson (Gen) is a student loan expert, debt management specialist.  She is the owner of Degrees of Success and is the founder of the financial empowerment series, Stress 2 Success: Debt Management and Wealth Building.

For valuable financial tools and information on how to set yourself up for a happy retirement, check these out:

Retirement Calculator, 401k Allocator, How Do I Stack Up Quiz, Money & Happiness Quiz, and You Can Retire Sooner Than You Think

Disclosure:  This information is provided to you as a resource for informational purposes only.  It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.  Past performance is not indicative of future results.  Investing involves risk including the possible loss of principal.  This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.