Just Graduated with Federal Loans? Use Your Grace Period Wisely

Are you a recent graduate with federal loans who is worried about how to pay down your balance? You may want to read carefully through this blog, because the information contained within might provide ways to pay down balances before payments come due. Grace periods, which typically begin after graduating (or when students leave school or drop below half-time), can allow recent graduates to get a six to nine-month head start on paying down loans after graduation.

Depending on which types of federal loan borrowers have and when the loans were dispersed, options for grace periods are different. For example, federal Direct Loans dispersed on and after July 1, 2012 and on or before July, 1 2014 accumulate interest during the grace period. Some federal loans do not have grace periods at all (PLUS loans).

Graduates with grace periods should do whatever it takes to make payments during this time. Payments are not due during grace periods, so now is the time to get a head start.

How You Can Maximize the Benefits of Grace Periods on Student Loans

This illustrative example can help provide more context to what graduates could do during their grace periods.

Tom recently finished his Bachelor of Science in Mechanical Engineering from a public research university with $17,500 in federal Direct Loans. After graduation, Tom gets a full-time job working for a multinational oil company. To help save money, he keeps his living situation the same, where he only pays $650 per month for rent with four roommates. Tom’s grace period kicked in after graduation, so he will not owe payments on his student loans for another six months. With a new salary of $45,000 a year, Tom decides to use this grace period to make $600 payments for the next six months on his federal Direct Loans. Now, because Tom’s loans were dispersed after July 1^st, 2014, no interest will accumulate during the grace period.

If we do the math, he can bring down his loans by $3,600 and get a huge head start on repayments. Folks, this is why the grace period is so important. Keep living expenses low during this time. The lower the balance becomes once the interest starts accumulating, the easier it will become to pay off those pesky student loans. Maximize the benefits of grace periods on student loans—most of you will only get one.

For those of you who do not have traditional grace periods (where interest accumulates) or none at all, there are other tips we can offer that may help reduce monthly payments, so keep following our blog for future updates.

The Kansas City bankruptcy attorneys at The Sader Law Firm have the experience and knowledge that can help students lower monthly payments on loans.