Student Loan Grace Period Over? What to Do Next

College grads who have student loan debt usually don’t even think about their debt until they have to. For students who graduated in May 2019, that’s THIS MONTH! The grace period is 6 months after your graduation date during which you are not required to make any payments at all unless you want to and can afford to. 

First things first, recent college grads like to say “I don’t have to worry right now because my loans are in the grace period.” As a young person, you should make every financial decision with all the context and background knowledge. In order to do that you will need to know as much as you can before choosing to make any big decisions. For the record, choosing not to do anything is also a choice! By waiting it out and not sending any payments at all during the 6 month grace period, you could be costing yourself thousands of dollars over the course of your 20’s. That’s just not smart! If you know you have unsubsidized federal student loans or private student loans, then the best thing to do is start making payments immediately so that you will end up paying much less over the course of your life by cutting down interest fees early. 

Once that six month grace period ends though, you’ll start getting bills in the mail for your student loans and making a payment is no longer a choice. If you miss the due date on these payments the consequences are real! You’ll start to see your credit score decrease quickly and your credit report will have some negative remarks on there. This affects all of your future applications for credit, which means it could be difficult to get approved for things like a car, apartment, loan or credit card later because you were slacking on those student loan payments. 

So, what’s a broke and confused recent college grad to do?

You pretty much have to accept the fact that you’re no longer in college, and it’s time to step it up and start #Adulting.

Do the research

Start by finding out the answers to these questions and writing them down somewhere so you don’t forget it! You may need to pick up the phone and call your loan servicer for answers.

• Who is my student loan servicer?
• Do I have federal student loans from the government, private student loans from a bank or private company, or a mix of both of these loan types?
• If I have federal student loans, are they subsidized or unsubsidized loans?
• What is the exact amount of money that I owe for each loan?
• What is the annual interest rate I’m being charged on each of my loans?
• What are the due dates for the monthly payments I’m responsible for?

Plan your work and work your plan 

Figure out which repayment plan is going to be best for you based on your current financial situation and your future career goals.  

If you have private student loans, then you can’t sign up for any of the federal student loan repayment plans.You have no other choice but to call up your lender and ask about your repayment options. If the interest on this loan is really high and your lender is not working with you at all to lower your payments or your interest, then consider a personal loan or calling up a student loan refinancing company instead. These companies can help pay off your private student loans and charge your one monthly fee to repay them back but at a much lower interest rate. Just make sure that you compare your options before you apply to get the lowest possible rate out there.

For all federal student loans, whether subsidized or unsubsidized, you have some repayment options to choose from. To help you choose between the options below, you may want to plug all the details you jotted down about your loans into this repayment calculator to see what is recommended for your situation. 

• Standard Student Loan Repayment: This is the one that you’re automatically placed into after the grace period is up. You make equal monthly payments for 10 years and then you’re done. If you can afford the standard plan, which is pretty aggressive for most with more than an average amount of student loan debt, you’ll pay less in interest and pay off your loans faster than you would on other federal repayment plans. This is the best plan for those who only care about saving as much money as possible by paying the least amount of interest over the 10 years.  
• Income-Driven Repayment: There are 4 different income-driven plans. This is where things can get confusing. There’s income-based repayment, income-contingent repayment, Pay As You Earn (PAYE) and Revised Pay as You Earn (REPAYE). These 4 options are only the best for you if your income is extremely low and you are not able to afford the standard payment plan even if you live super frugally. Each of these plans will set your monthly payment to be between 10% and 20% of the amount of money you have left after you pay for basic necessities. Payments can be as small as $0 and can change annually. Income-driven plans extend your loan term from 10 years to 20/25 years. Then, at the end of those 2 decades, any remaining loan balance is forgiven — BUT the catch is, you have to pay taxes on the amount that gets forgiven. That can be painful, depending on how much you owe. 

Pick up the phone

No matter which one you choose, just make sure that every single month you make a call and check in again to see if there’s anything that can change for the better. Lower rate offer this month? New programs that exist for you take advantage of? Legislation that recently passed that could help you out? The only way to know is to ask, so make your loan servicer your new bff and talk to them every single month!

The key is to focus on the total you’re going to pay by the end of the loan repayment. Just because you’re paying less each month now, doesn’t mean it was the best deal for you down the line! For all federal student loans, you can enroll in these repayment plans at studentloans.gov or directly through your loan provider by doing something that you should get very used to calling them up!