The student loan grace period is meant to give grads some time to adjust during the transition from college to the working world. Essentially, you’ve got a six-month window to find a job so you can be financially prepared for when your loan payments are due.
The mistake that many grads make is thinking that they don’t have to do anything about their loans during this time. Instead, they focus on kicking off their career and tell themselves that they’ll worry about the debt later. The downside of that kind of attitude is that it means you waste valuable time that you could be using to make a dent in your balances or perfect your repayment strategy. If you want to make sure you’re getting the most out of your student loan grace period, here are five things to put on your to-do list.
1. Centralize your accounts
If you borrowed from multiple lenders while you were in school and you’ve got a mix of federal and private loans, checking your interest rates, staying on top of due dates and tracking your payoff progress becomes a little more challenging. Using an aggregation tool like Tuition.io or Student Loan Hero lets you keep tabs on everything you owe in one place.
Creating an account through either service is free; you’ll just need your Social Security number and your Federal Student Loan pin if you borrowed through the Department of Education. When you log in, you’ll see all of your loans listed individually, with a breakdown of your balances, interest rates and payments. Each site also includes tools and resources that you can use to come up with a repayment strategy that could help you eliminate the debt faster and save a little money along the way.
2. Make payments towards the interest
During the grace period, payments aren’t required on your loans but that doesn’t mean you shouldn’t try to throw something at them if you can. If you took out Direct Subsidized loans, no interest will accrue during this time but that’s not the case with Unsubsidized loans. For every day that passes during the grace period, a few more dollars in interest are being tacked on to the balance.
Every extra penny you throw at the debt can make a big difference in how long it takes you to pay them off and what you shell out for interest. For example, let’s say you graduate with $30,000 in loans and you pay $100 a month towards them during the grace period. That $600 may not seem like much but it shaves three months off your repayment term and saves you nearly $400 in interest. Just imagine how much more you could save if you could double or triple those payments.
3. Compare your repayment options
If you took out federal loans, you’ll automatically be put on the 10-year standard repayment plan once you graduate. This is the best way to go if you want to get your loans paid off the fastest and save the most on interest, but it’s not always realistic for a new grad’s budget. Choosing an income-driven repayment plan allows you a little more wiggle room as far as your payments but it’s not your only choice.
The graduated plan still operates on a 10-year time frame but it allows you to steadily increase your payments as you begin earning more. With the extended plan, you can get up to 25 years to pay off your loans. The biggest difference between these plans and the income-driven options is that your payments aren’t calculated based on your earnings. The income-driven plans also offer the possibility of loan forgiveness after a certain period of time.
Grads who borrowed from private lenders generally have a much narrower range of choices in terms of repayment. Typically, your payments are set based on what you owe and your interest rate, rather than what you can reasonably afford to pay. Along with private loan issuer Sallie Mae, Wells Fargo and Discover are rolling out modification programs designed to help struggling borrowers, so if you’re worried about being able to meet your minimums, it’s worth it to see if a modification is an option.
4. Streamline your payments
When there are multiple loans in the mix, making several different payments each month can quickly become a hassle. Taking advantage of the grace period to consolidate your federal loans or refinance your private loans allows you to combine all of your debts so you’re not having to write as many checks once the repayment period kicks in.
Direct Consolidation loans are available to grads who owe subsidized or unsubsidized Direct loans, Stafford loans, PLUS loans, Perkins loans and Health Education Assistance loans. You can apply through the Federal Student Aid website with your Social Security number and federal PIN. Direct Consolidation loans feature a fixed interest rate and the loan terms can last from 10 to 30 years.
Private loans generally can’t be consolidated with federal loans but refinancing is always an option. Not only can you combine your payments, but you should be able to snag a lower interest rate. The tricky part is finding the right lender to refinance with, since terms and rates can vary substantially. When you’re comparing lenders, you want to pay close attention to whether the interest rate is fixed or variable, how much it is, whether there are any origination fees involved and what the requirements for co-signers are to make sure you’re getting the best deal possible.
5. Get to know your lenders
Even though student loan servicers sometimes get a bad rap, they’re not really out to get you. They do, however, expect you to pay back the money you borrowed to complete your education. The grace period is a great opportunity to get to know your lender and familiarize yourself with the terms of your loans.
For instance, if you receive your first statement and there’s something you don’t understand, you shouldn’t hesitate to call up your lender for clarification. If you can’t manage the payments on the standard plan, you don’t want to wait until you’re behind to ask your lender what other options there are. Maintaining good communication is key to heading off potential problems down the line.