9 Things You Need to Know Before Your Student Loan Grace Period Ends

October 17, 2018

Written by Amy L. Lauricella, Content Writer

Young Woman Concentrates On Computer At Desk

Autumn is here, so cue the cozy sweaters, the apple-picking Insta pics, all things pumpkin spice, and…your student loan bill?! That’s right, for many recent college graduates, that first bill could be arriving in your mailbox soon. For most federal loans and some private loans as well, your student loan grace period typically ends six months after you leave school. So for May grads, that means November. 

It’s time to face your debt head-on, and to use these next few weeks for finalizing your student loan repayment strategy. Because to take control of your student debt, you need exactly that: a strategy. Here are nine things you need to know now.  

1. Know what you owe.

For federal loans, the U.S. Department of Education’s National Student Loan Data System (NSLDS) is a great place to start. Here, you’ll find detailed information on any federal loans you’ve taken out. 

If you used private student loans to finance your education and are unsure of the details, you can contact your school’s financial aid office to inquire, or you can check your annual credit report.

If you have questions for any of your loan servicers, now is the time to speak up. It may also be helpful to put together a spreadsheet detailing your loans, their corresponding interest rates, and the parties owed for each. 

2. Know your personal financial situation.

There are a lot of potential variables in your financial life right after college. Maybe you’re still looking for that first real job or you had a job offer in hand on graduation day. Maybe you’re living back at home for a while to build your savings or you’re on your own in an apartment and have rent to pay. There isn’t a one-size-fits-all-grads strategy for student debt. 

Now is the time to take a close look at your income, expenditures (including the incoming loan payment), and any ways to widen the difference between the two. There are a lot of budgeting apps out there that can help you with this. 

3. Know that you can change your student loan repayment plan.

Most borrowers are automatically assigned to a standard, 10-year repayment plan. If you can afford the monthly payments on this plan—great. The standard plan is usually the cheapest over the long term, because you pay it off faster and with less interest to pay. However, if you aren’t making much money right out of college and worry you may struggle making those payments, there are alternatives to consider. 

Federal loan borrowers can request to change their repayment plan at any time, and there’s no cost to do so. You can contact your loan servicer for more information or to request a repayment plan change. 

Click on any of the plans below if you’re interested in reading more.

  • 10-Year Standard Repayment Plan

    Under this plan, you will:

    • Make fixed payments every month. 
    • Usually pay less over the long term compared to other plans. 
    • Pay off your loan in 10 years (assuming you only make minimum payments).
  • Graduated Repayment Plan

    This plan may be for you if aren’t making a lot of money right now, but can confidently expect, based on your major and career field, to earn significantly more down the line. 

    Under this plan, you will:

    • Make payments that are lower to start and increase every two years.
    • Usually pay more over the long term compared to the 10-year standard plan.
    • Pay off your loan in 10 years (assuming you only make minimum payments).
  • Extended Repayment Plan

    This plan lowers your monthly payments across the life of your loan, but remember: you’ll pay more overall because of interest. You must have more than $30,000 in outstanding loans to qualify. 

    Under this plan, you will:

    • Make monthly payments that are lower, compared to the standard and graduated repayment plans. 
    • Usually pay more over the long term, compared to the 10-year standard plan. 
    • Pay off your loan within 25 years (assuming you only make minimum payments).

Income-Driven Repayment Plans

These plans cap your monthly payments at a set percentage of your monthly discretionary income. Your discretionary income is your income minus 100 percent or 150 percent of the federal poverty guideline for your state and family size. (The percentage used varies depending on the repayment plan.) 

Under these plans, if you haven’t repaid your loan in full after 20 to 25 years, the outstanding balance will be forgiven—but, under current tax law, that forgiven balance is taxable. You’ll also likely pay more over time than you would have on the 10-year standard plan.  

Click on any of the plans below if you’re interested in reading more. 

  • Pay As You Earn (PAYE)

    Under this plan, your payments will generally be:

    • 10 percent of your discretionary income. 
    • Never higher than the 10-year standard plan.
    • Recalculated annually. 
  • Revised Pay As You Earn (REPAYE)

    Under this plan, your payments will generally be:

    • 10 percent of your discretionary income. 
    • Recalculated annually. 
  • Income-Based Repayment Plan (IBR

    Under this plan, your payments will generally be:

    • 10 percent or 15 percent of your discretionary income, depending on the date you first received a student loan.
    • Never higher than the 10-year standard plan. 
    • Recalculated annually. 
  • Income-Contingent Repayment Plan (ICR)

    Under this plan, your payments will generally be the lesser of:

    • 20 percent of your discretionary income, or
    • the amount you would pay with a fixed payment over a 12-year term, adjusted for your income.
    • Recalculated annually. 

Eligibility for income-driven repayment plans will vary depending on factors including the types of loans you borrowed, the dates on which you received your loans, and the amount of your debt relative to your income. 

You can learn more at studentaid.ed.gov.

Private Loan Repayment Options  

If you took out any private educational loans, your available repayment plans will depend on your lender. Generally speaking, private student loans come with fewer repayment options than federal student loans. But, some private lenders do offer alternative repayment plans, with some of them modeled on federal loan plans. Contact your private loan servicer to discuss your options. 

4. Know the perks of automated payments.

Going with automated payments is obviously helpful for avoiding accidentally late or missed payments. Beyond that, many lenders offer a discount to entice borrowers into enrolling in auto-debit. That discount is typically a 0.25 percent reduction in interest. Now, we’re not about to try to convince you that 0.25 percent sounds like a lot. But the higher your loan balance, the more that little number can add up over the life of your loan—up to about $450 over ten years if you owe a fairly average $30,100, for example.  

5. Know that some employers may help you pay your student loans.  

A new kind of employee benefit is starting to show up in job offers across the United States: a student loan repayment benefit. A survey by the Society for Human Resource Management found that, as of 2018, about 4 percent of employers offered this type of benefit. No, sadly, these employers won’t pay off your student debt completely for you. But, they will make contributions, monthly or annually, toward a qualifying employee’s loan repayment. Aetna, Estée Lauder, Live Nation Entertainment, and Staples are some of business’s big names currently on board with this trend. 

Of course, the best-known employer to pay off student loans is none other than the U.S. Armed Forces. The services’ College Loan Repayment Program (CLRP) is an enlistment incentive for new recruits.   

6. Know whether you qualify for student loan forgiveness programs. 

If you work in public service (including some types of military service), healthcare, or education, you may qualify to have some or all of your outstanding loan balance forgiven or canceled after a period of time. The examples below are federal programs. Keep in mind that some states offer their own loan forgiveness programs, too. 

Click on any of the programs below if you’re interested in reading more. 

  • Public Service Loan Forgiveness

    This program offers forgiveness on outstanding direct loan balances after 120 qualifying loan payments have been made, and is available to eligible full-time employees of:

    •  Government organizations at any level (federal, state, local, or tribal)
    • Not-for-profit organizations that are tax exempt under IRS Code Section 501(c)(3)
    •  Other not-for-profit organizations if their primary purpose is to provide certain types of qualifying public services. 

    You can learn more from studentaid.ed.gov.

  • Teacher Loan Forgiveness

    This program offers forgiveness of up to $17,500 in direct federal or Stafford loans to qualifying teachers after five years of full-time employment in eligible, low-income public elementary or secondary schools. 

    You can learn more from studentaid.ed.gov.  

  • Nurse Corps Loan Repayment Program

    This competitive program pays up to 60 percent of a qualifying nurse’s outstanding loan balance after two years of work, and up to another 25 percent after a third year of work. Nurses must be accepted into the program and must work in a qualifying hospital or clinic with a critical nursing shortage. 

    You can learn more from the Health Resources & Services Administration at hrsa.gov

  • Perkins Loan Cancellation

    This program offers cancellation of up to 100 percent of outstanding Perkins loan balances to approved borrowers after five years of full-time employment in qualifying public service jobs. Potentially qualifying jobs include:

    • U.S. armed forces member serving in hostile fire or imminent danger pay area 
    • Firefighter, law enforcement officer, or corrections officer
    • Teacher in eligible subject areas
    • Head Start staff member 
    • Tribal college or university faculty member 
    • Master’s degree-level librarian or speech pathologist in Title I school 
    • Child or family services worker to high-risk children from low-income communities
    • Early intervention services provider
    • Federal public or community defender attorney
    • Nurse or medical technician
    • Volunteer with Americorps VISTA or the Peace Corps

    You can learn more from studentaid.ed.gov.

8. Know that “minimum payments” are just that.

Think of your monthly “minimum payments” as a starting point and aim upward from there. As your career takes off and you rake in more money, start paying extra on top of that minimum. Another smart strategy is to try making a second payment each month, or at least whenever you are able. Additionally, making a lump-sum payment on a loan, for example after a tax refund or work bonus, can mean a huge morale boost when you see a visible dent in your balance for the first time. 

College may have been the best years of your life, but it was only (about) four years, so why keep paying on your debt for 10 or more?

9. Know that you are in control of your college debt—and your future. 

 Staring down thousands or tens of thousands of dollars in debt right at the beginning of your adult life can definitely feel overwhelming. Don’t let your student loans get in the way of your big plans for the future. Get strategic about how you handle your debt, stay proactive in your personal finances, and start by learning as much about money as you can.