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The Grace Period For Student Loans Is Coming To An End

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grace period for student loans

For those who graduated in May, the grace period for student loans is ending. Many graduates will find their first payment date approaching in late December to early January. With nearly 40 percent of student loan borrowers expected to default on their loans by 2023, it is important to know when your payment is due as well as the different options you may have.

What is the Grace Period For Student Loans?

Many students have a grace period of six months after graduation to make their first payment on their student loans. Folks who graduated in the spring will begin receiving statement letters in the mail this month.

That is, unless you received a Perkins loan (a specific type of federal student loan). If you received a Perkins loan you generally have a nine month grace period.

What Now?

If you’ve received that first bill in the mail, don’t panic. Now is the time to take stock of your loans and create a plan. Know how much you owe and who your servicer is. The servicer company typically will handle sending out statements, collecting payment, and managing your account. Borrowers with multiple loans may have more than one servicer. Check the student loan website to see a full list of loans and servicers.

During this time you should also be sure your student loan servicers have all of your current contact information. This includes a valid email address, home address, and telephone number. Giving them your current information will prevent you from missing a payment.

Private Loans

It is important to note that the federal student loan website will not have any information about your private loans if you took any out for school. If you don’t have the original loan documents, you can reach out to your alma mater to get copies. However, you’ll likely want to begin payments on private loans as well because their grace period is also likely approaching.

Payment Options

If you’re already feeling overwhelmed, remember you have options. Generally, borrowers are automatically enrolled in a 10-year repayment plan. You can get as much as 30 years to repay your student loans.

Some borrowers may find that a 10-year repayment plan is too high of a monthly payment than they can afford. If that’s the case you can request a temporary postponement of payments.

You can also apply for an alternative plan with overall lower monthly payments or income-based payments. This can bring your monthly payment down drastically and, sometimes, lead you to making no monthly payment. It is important to note that this can extend the amount of time you’re paying on loans though.

Each payment plan has different criteria to be deemed eligible. However, having an open line of communication between you and the lender is never a bad idea.

Repayment options can be a bit confusing and, for the most part, many students are required to find everything out for themselves. Even though it may feel awkward to talk about your debt situation with someone over the phone, it is better to explain it than risk going into default.

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This Man Escaped His Student Loan Debt By Moving to the Jungle

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Student loan debt

Just months ago student loan debt reached a high, ugly milestone of $1.52 trillion. Unsurprisingly, many people find their student debt to be overwhelming, leading to depression and suicidal thoughts in some individuals. In fact, people who are undergoing serious financial stress are eight times more likely to have suicidal thoughts – and some engage in extreme behavior to avoid paying.

Growing Student Loan Debt

Student loan debt has seen a 145% increase in the past decade with no signs of slowing down any time soon. In many cases, individuals carry more student debt than they do in auto loans or credit card debt.  For some individuals, the weight of their personal student debt is too heavy for them to carry. Chad Haag was one of those people.

Chad Haag Delt With His Debt by Fleeing the Country.

Haag considered living in a cave in the United States to escape his student debt. According to Yahoo Finance, he already knew a friend doing it. However, for Haag, this wasn’t leaving his problems far enough behind. He wanted to get as far away from his debt as possible.

After majoring in philosophy in college, he held a student loan balance of about $20,000. While that is pennies compared to many other borrowers in the U.S., Haag pointed out that not being able to a land a college-level job made his $300 monthly loan payment devastating to his finances. He was only making $1,700 per month, living with his mother, and rarely going out with friends. “I couldn’t make the math work in America,” Haag said.

Running to the Jungle to Get Away From Debt


He relocated to a jungle in India to escape his student loan debt. In an interview, he said, “I’ve put America behind me.” Now, thousands of miles away from where he once lived in constant anxiety from his debt, Haag says his loans don’t even feel real to him anymore.

His student loans are on their way to being in default and they only thing Haag has to say is, “It’s kind of like, if a tree falls in the woods and no one hears it, does it really exist?” Of course, this kind of care-free attitude has not come without its trade-offs.

Where Haag is living is far from his Colorado home. He is living in a concrete house in a village in India. The house only costs about $50 per month and Haag says he sees elephants outside his home regularly. Haag also referenced the poor living conditions in some areas of India, stating, “Some toilets here are holes in the ground you squat over.”

Food quality can be a problem as well. He recently ate spoiled goat meat that landed him in the emergency room. However, dreams that would have escaped him in the U.S. because of his debt are now becoming realities for him in the jungle of India.

He has gotten married and he and his wife have plans to own a home soon. Currently, he has a five-year spousal visa and has plans to renew it when it comes time. Haag has absolutely no plans to return to the U.S. or repay his student loan debt.

student loan debt

Is This Responsible?

There is no doubt that many Americans find this type of behavior abhorrent. Student loan debt is only expected to continue to rise in the years to come with estimates projecting students will owe $2 trillion by 2022.

Half of the student loan borrowers haven’t paid a single dollar towards what they owe five years into repayment. Another 40% of those loans are expected in be in default by 2023.

However, moving away from the problem doesn’t make it go away. If anyone is moving away, like Haag, to escape their debt, they’ll find that if they ever return to the U.S. their debts will not be gone.  Given the structure of many loans, debts are in fact more likely to grow than be excused. Compound interest, late fees, and collection charges are all typically added to your balance if payment is not made.  In addition, late payments will impact your creditworthyness.

Not only will it not go away, but running away will make it worse. The best thing you can do is work out a debt repayment plan that works for you.

How to Keep Your Student Debt Manageable

Many people look at student loan debt as “healthy debt.” And while it is much “healthier” than, say, credit card debt, or even an auto loan sitting on your credit report, it still is a huge responsibility. If you or someone in your household is getting ready to head off to college or go back to school, consider thes money-saving tips.

  1. Go to school in-state. It has been common knowledge for years that going to school closer to home costs less money. If you aren’t getting a full-ride out of state, keep your eye on public schools closer to you. A private university’s tuition sits around $34,740 per year on average. An out-of-state public university isn’t much cheaper at $25,620. However, community colleges and in-state public universities are priced at $3,570 and $9,970, respectively. That’s much less in tuition.
  2. Stay at home to avoid room and board fees. Another great thing about going to school closer to home is that you can stay at home. This will save you thousands of dollars on room and board every year.
  3. Oh – and bring your lunches. It can also save you a ton of money on food. Instead of throwing money at a meal plan or eating on campus every day, you can bring your own lunch and save hundreds of dollars per month.
  4. Take a fast-track in your program. Depending on what your career goals are, you may consider asking someone at the university about a fast-track course for your degree. This will shorten the amount of time you’re in college, making tuition much cheaper.
  5. Avoid private loans. If you can help it, don’t take out any private loans. These are typically higher interested and begin to accrue interest while you’re still in school, unlike loans available through the U.S. government.
  6. Consider taking on work-study or paying your tuition in cash while you’re in school. It’s also possible to work while you’re in school to pay off the remaining tuition you owe. Many schools will work with you on monthly payments to remain in class and will apply funds made through work-study programs to these payments. You can also hold a job off-campus to raise additional funds. This way, you can leave school without owing any money on student loans.

Student Loan Debt Repayment

Remember, if you are feeling overwhelmed by your student debt you have options. Before taking off to India or another remote jungle, consider the options below.

  1. Get more time. Although it is not optimal, may be able to extend the repayment period on your loan to give you more time. Periods for repayment start at 10 years and go up to 30 years, depending on the amount and your ability to pay.
  2. Take a couple months off. You can get a couple months off from paying your student loan if you need it.  If you or your partner lose a job and you need a couple months to get back on your feet, you can ask for a couple of months off (most of the time) it is granted. Keep in mind, your loan will still be accruing interest during this time.
  3. Income-based payments. Talk to someone at the bank or company you received the loan through about income-based payments. If you believe your payment could (and should) be lower, talk to someone about adjusting it based on your income. They’ll do what they can to help you.
  4. Financial crisis assistance. If you or your family have faced a serious financial crisis, you can also ask for some time off. This is a bit longer of a period of time than the “couple months off” listed above and, similarly, your loans will still be accruing interest. However, it will keep your loans from going into default.
  5. Keep communication open. If you keep communication open between you and your loan officer, you will be able to work on repaying your student loans. In many cases, these individuals are understanding and will work with you based on your individual circumstances.

All in all, student loan debt is just another type of debt that can help or hurt your creditworthyness. However, it is nothing you should feel like you should run away from. Tackling it head-on and paying it down is the only thing that will truly make your debt nightmare go away.

Readers, what do you think about this man running away from his student loan debt? 

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First Student Loan? Use This Money Wisely

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student loan uses

Currently, there are approximately 20 million students enrolled at colleges in the US. And, when they graduate, around 70 percent of them will owe money on at least one student loan. In fact, the average student loan debt owed by a single graduate is over $37,000, based on statistics from 2016.

Most students view student loans as a necessary evil. Without the funds, they can’t afford college, leaving them with little recourse.

However, many students, especially incoming freshman, struggle to use the money wisely. But failing to act responsibly can come with significant consequences, ranging from failing to cover school expenses to increasing debt loads. Since approved student loan uses can vary depending on the kind of loan, knowing the right approach to managing this money is a must.

If you have your first student loan and aren’t sure how to handle the money wisely, here are some tips.

Educational Expenses

The primary purpose of student loans is to cover educational expenses. Federal student loans have strict requirements regarding how you can spend the money. Typically, funds from federal student loans are sent to the school first. This ensures the college receives payment for your primary expenses, including:

  • Tuition
  • Room and Board
  • Fees

After meeting these expenses, you can get a student loan refund from the school. Usually, this is a check that you can deposit in your bank account. Then, you can use the money for other qualifying costs, including:

  • Books
  • Supplies
  • Equipment
  • Personal Computers
  • Dependent Child Care
  • Transportation (Not Including a New Car)

By design, the federal student loan program almost forces you to use the money wisely. You cannot spend the funds on anything that does not qualify. If you receive an amount that exceeds your need, then an adjustment to your student loan may occur, or you have to use the excess to make a payment on your student loan.

Private student loans are different. They aren’t always as restrictive in regards to student loan uses the bank views as appropriate. However, the exact terms vary by lender. You’ll need to read your loan documents to find out how you can use the money.

Additionally, the funds might not go to the school first, though they usually do. In cases where the money doesn’t go to the school, it is sent directly to you. After receiving the cash, you are fully responsible for paying your educational expenses.

While you aren’t under the same restrictions, it’s smart to use the federal student loan guidelines to help you spend the money in the right places. You always want to cover your educational costs first, beginning with your primary expenses and then your other qualifying costs.

After covering those, you do end up with some choices.

Additional Student Loan Uses

Once you handle your educational expenses and school-related costs, you have some decisions to make. However, if you want to use the money wisely, certain options are better than others.

For example, you can send the excess money back to the lender to pay down your student loans. This can help you lower your balance and avoid some interest, ensuring your debt remains as small as possible.

If you have a federal student loan and have an entire disbursement you don’t need, the easiest thing to do is cancel that loan. You have 120 days after the disbursement to handle the process but may need to work with your school’s financial aid office to handle it properly.

For private loans, you just send the money back as a payment. Usually, you can handle this online through your loan account portal.

What About Fun Money?

When you have student loan money that doesn’t have to be spent on educational expenses, it can be tempting to spend it anyway. The idea of a dinner out or a nice vacation during spring break may be enticing, or getting a new wardrobe may leave you invigorated.

The thought of spending the money usually relates to having a little fun, something that can be important in college. After all, earning a degree can be hard, so it’s easy to assume the mindset that you deserve a reward.

But, it’s important to remember that those examples above aren’t smart ways to spend your money.

Student loans are debt. This means you will pay interest on the amount you borrow. Furthermore, the size of your loans impact your creditworthiness, and large debts make it harder to finance other things you may want in the future, like a house or a car.

Plus, the higher your debt, the higher your payment. For example, if you borrow the average amount of $37,000 with a 6 percent interest rate, on a 10-year repayment plan, you’ll be paying around $411 per month. Over the life of the loan, that comes out to approximately $49,300, $12,300 of that being interest.

However, if you don’t use $4,000 of that money (just $1,000 per year) and send it back to your lender immediately, you’ll owe $33,000. The monthly payment then is about $366. You’ll pay a total of just under $44,000 (about $11,000 in interest), resulting in a pure interest savings of $1,300, not including the $4,000 in principal you don’t have to repay.

If you double the amount you send back, making it $8,000, you’ll get a bigger benefit. Then, you’ll borrow $29,000 and have a $322 monthly payment. You’ll repay around $38,600 over 10 years, with $9,600 being interest. That creates a total interest savings, in comparison to the first scenario, to $2,700. When you add in the principal you don’t have to worry about, you avoid $10,700 in student loan debt payments.

There are numerous repayment programs out there and there are even times your loans can be discharged, but don’t use this information to make poor choices, use it to gain more knowledge of paying loans back when the time comes.

Ultimately, limiting your student loan debt is always a smart move. It helps your creditworthiness, lowers your payments, lets you avoid some interest, and can even provide peace of mind.

If you want to be wise with your student loans, only use the money for important educational expenses. Then, if you have any left over, send it back to the lender. Your future self will appreciate your smart thinking and your wallet will too.

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5 Ways To Have Your Student Loans Forgiven

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And Which Forgiveness Paths Could Close Soon

5 Ways To Have Your Student Loans Forgiven And Which Forgiveness Paths Could Close Soon
Does your student loan situation look hopeless? Don’t give up hope yet. Consider these alternative repayment programs that can provide manageable loan payments and lead to forgiveness of a portion of your loan in exchange for some form of service.

1. Public Service Loan Forgiveness (PSLF)

As it stands, the PSLF program allows those working in government organizations and certain non-profit organizations to achieve loan forgiveness.

To qualify for forgiveness, borrowers must make ten years of qualifying payments under one of the income-driven repayment (IDR) programs offered by the Department of Education.

These programs are popular with certain professions like police or fire department employees and public defenders where collegiate expenses aren’t in line with the pay provided by a public service position.

Legislative Changes

The 2018 Consolidated Appropriations Act, which was passed in March and funds the government through September, has created a one-time-only $350 million expansion of the PSLF program.

This fund will cover the cost of canceling the loans of public servants who unknowingly selected non-qualifying repayment plans.

These loans will be forgiven on a first-come, first-serve basis until the fund runs out.

Watch for Updates

The Department of Education is currently assessing the full impact of the Act on PSLF, so keep checking the official site for the latest updates.

Be warned: Although the latest spending bill ignored many of President Trump’s proposals, his administration still seems intent on eliminating the PSLF program eventually.

It isn’t clear whether this would also include eliminating the corresponding Teacher Loan Forgiveness program aimed specifically at teachers in low-income districts or service agencies.

2. IDR Programs

As with PSLF, the IDR programs may be subject to change within the next budget. Currently, there are four federal programs that generally offer loan forgiveness after twenty years of regular payments that represent 10 percent of your discretionary income.

The four are the Revised Pay As You Earn plan, the Pay as You Earn plan, the Income Based Repayment  plan, and the Income Contingent Repayment plan.

However, the proposed Trump budget seeks to combine all these programs into one program, changing the monthly payment to 12.5 percent of discretionary income but forgiving the remaining loan balance after fifteen years.

3. State Student Loan Forgiveness Plans

If the federal government won’t help you, perhaps your state can. Currently, there are only five states that do not offer at least one form of student loan forgiveness plan (Alabama, Connecticut, Tennessee, Utah, and West Virginia).

Texas leads the way with nine different programs targeted at specific groups such as physicians, nurses, and educators. Check the options in your state to see if any state programs apply to you.

4. U.S. Military Service

The Army, Navy, Air Force, and National Guard all have a series of programs for loan forgiveness for active-duty military members and veterans.

While some loan forgiveness programs may end up on the budgetary chopping block, it seems highly unlikely that the current administration – or most administrations – would accept cuts in forgiveness programs within the military.

If forgiveness does not apply, the military also offers deferment options on subsidized loans during active duty service.

5. Employer Programs

Some larger employers offer partial student loan repayment as a recruiting tool. Only 4 percent of employers offer these programs, according to an estimate from the Society for Human Resource Management — but if you find such an offer, take full advantage of it.

In special circumstances, other loan forgiveness programs may be available. If your school closes prior to your graduation, you may be able to have the loan discharged.

Students at for-profit institutions that engage in fraudulent or illegal practices may also qualify for student loan discharges.

Remember Taxes

While forgiveness can make a huge difference in your finances, don’t forget about taxes. Except for the PSLF and Teacher Loan Forgiveness programs, loan amounts that are forgiven are classified as taxable income for that year — and your tax bill may skyrocket as a result.

The President could suggest to do away with the PSLF and IDR programs again in the next budget proposal later this year.

Keep up with the latest developments to see what options are available to you – and make sure that you make your existing student loan payment on time to maintain eligibility for any forgiveness programs.

This article was provided by our content partners at MoneyTips.com. Photo ©iStockphoto.com/DanielBendjy

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5 Biggest Warning Signs for Student Loan Debt

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5 Biggest Warning Signs for Student Loan DebtAs a nation, America’s student debt load is reaching crisis proportions. The New York Federal Reserve puts the total student loan debt at over $1.52 trillion, with the delinquency rate over 11 percent.

Is your personal student loan situation nearing a similar crisis? Consider these five warning signs to assess whether you are handling your student loans responsibly or are on the road to potential default.

1. Apathy or Denial

This may be the most dangerous sign of all – refusing to realize the consequences of defaulting on a student loan. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, likens student loans to “the worst weed to have in your yard because if it goes unchecked, it will grow to massive proportions.”

You can’t just wave a magic wand and make your student loan debt go away, nor can you pretend there aren’t serious consequences for defaulting.

At best, your credit is ruined for years. The Federal Student Aid Website contains information on alternatives like income-based repayment options and deferment or forbearance – but you have to make the effort to seek them out. Note that you may also not qualify for certain options.

2. Missing Monthly Payments

You must make the minimum monthly payment on your student loan to avoid penalties and other detrimental side effects. If you find yourself missing a payment or making overdue payments for any reason, you may be in trouble – whether it’s from carelessness or lack of funds.

Set an alarm on your phone or computer to remind you that a payment is due. If you don’t have a budget, make a realistic one to control your spending. If you do have a budget, stick to it. Do whatever it takes to get those monthly payments in on time.

3. High Interest Rates

Generally, federal student loans provide reasonable interest rates compared to the open market – but if your student loan has abnormally high interest rates, consider your refinancing options through the Federal Student Aid website or through private lenders. Why pay any more in interest payments than you must? Find out quickly at what rate you can refinance your student loan.

4. Excessive Overall Debt

Did you rack up excessive credit card debt during the grace period? Does your job not bring in sufficient income to cover all your bills?

It’s easy to think you can make minimum payments and pay everything back in better times, but you run the risk of falling into a debt spiral – where interest payments on your balances become so large that you can never catch up.

Don’t consider bankruptcy as a viable option either. Student loans generally can’t be discharged in bankruptcy.

Again, budgeting and spending control is the answer. It may not be the answer that you want to hear, but it’s the correct one.

5. Poor Repayment Priorities

It’s wise to attack high-interest debt like credit card debt first – but you must make at least the minimum monthly payment on all outstanding debts, including your student loans.

If you devote all your funds to credit card debt and ignore other payments, the fees and penalties that you incur will negate your gains.

Warning Signs for Student Loan Debt

Of course, to have funds to pay down debt spending must be less than income. This requires sticking to a reasonable budget. Are you spotting a pattern? The answer to all these warning signs is responsibility – taking responsibility for your debt and managing your spending and income to meet all your obligations. Do any of the warning signs apply to you? If so, you know what to do.

This article was provided by our content partners at MoneyTips.com. Photo ©iStockphoto.com/Nastasic

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4 Out of 5 with Student Loans Can’t Buy a Home

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New Survey Shows the Impact of Student Debt on Homeownership

4 Out Of 5 Young Borrowers Blame Student Loan Debt For Not Owning A Home New Survey Shows the Impact of Student Debt on Homeownership

Financial aid in college can be your best friend or your worst nightmare. It can lead to an advanced degree that leads to a better job with higher pay and superior benefits. It can also be a hindrance: it’s the reason why millennials with student loans can’t buy a home.

A recent survey from the National Association of Realtors shows just how pernicious student loans can be: 83 percent those age 22 to 35 who don’t currently own a home blame the delay on student loan burdens.

The average delay in purchasing a home is seven years. Federal Reserve data shows that for every 10 percent increase in student loan debt, the odds of successful home ownership in the first five years beyond school drops by one to two percentage points.

Got Student Loans, Can’t Buy a Home

Given the $1.52 trillion total student loan debt reported by the New York Fed and an average debt of $39,400 for 2017 college graduates (according to Student Loan Hero), it’s no surprise that millennials delay home ownership.

Student loan debt is still a burden for many successful homebuyers. NAR found that 40% of first-time homebuyers still have student loan debt, and student loan debtors who purchased a home waited an average of three years to make their purchase.

Active student loans affect potential homebuyers in two major ways. It’s difficult for potential homeowners to save up sufficient down payment money, and excessive student debt makes banks less likely to extend credit.

How Lenders Assess You

Lenders consider your debt-to-income (DTI) ratio when assessing your ability to repay a loan. The DTI ratio equals your monthly debts divided by your monthly income (before taxes), expressed as a percentage.

Although there are exceptions, a 43 percent DTI is considered the safe limit for issuing mortgage loans – and many lenders prefer a 36 percent maximum.

According to the NAR survey, 52 percent of those delaying a home purchase can’t qualify for a mortgage due to a high DTI ratio.

No Discharging

Unlike other loans, student loans generally can’t be discharged through bankruptcy. There’s nothing for student loan issuers to repossess (they haven’t figured out how to repossess your education yet).

As a result, banks know that you’ll be dealing with student loans until you pay them off – or worse, default on them.

Missed payments will drop your credit score, creating a third factor against mortgage approval.

Many Defaults

Many student debtors end up defaulting on their loans, ruining their credit for years and delaying home ownership even further.

According to the New York Federal Reserve, as of the end of 2017, 11 percent of outstanding student loan debt was either at least ninety days delinquent or in default.

If you are a millennial unable to purchase a home because of student loans, start by reviewing alternate payment options through the Department of Education: Income-driven repayment programs may allow you to lower payments, and therefore lower your DTI.

Budget and Willingness

Your greatest tool for future homeownership is a realistic budget and a willingness to stick to it.

If you really want to own a home, make saving for a down payment part of your monthly budget, just as if it were rent and groceries.

Try to make extra payments against your student loan principal to reduce overall debt and save significant interest charges.

Are you willing and able to make the daily sacrifices necessary to buy a home despite a student loan burden?

It won’t be easy, but stay focused. Someday you will hold the keys to your new home, and all your sacrifices will have paid off.

This article was provided by our partners at MoneyTips.com. Photo ©iStockphoto.com/Peshkova

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