For most student loan borrowers, you get a six-month student loan grace period after graduation before you have to start paying off your debt.
Therefore, if you graduate in May, the student loan grace period means that you don't need to start paying off your student loans until starting in November. This gives you six months time to find a job before your first payment is due.
Your lender should send you a letter one or two months before your first payment is due, explaining all the details such as:
- How much is due
- Your monthly payment
- Your loan term
- Customer service number
- Payment options
Your goal should be to get the lowest student loan rate possible because interest rates have steadily declined over the decade. To do so, I'd check out Credible, one of the best student loan marketplaces where you can refinance your loan.
Credible has up to 10, pre-vetted, highly competitive student loan lenders who will compete for your business. It only takes a couple minutes to get some real quotes.
The Student Loan Grace Period Is Good And Bad
On the one hand, it's nice to have a six-month student loan grace period. Many college graduates don't have jobs lined up right after graduation, which is concerning given how much people pay and spend to get a college degree.
On the other hand, it's important to know that even if you have a 6-month student loan grace period before you need to start paying, there is no free lunch.
You will still owe interest on the grace period. Therefore, if you have the financial means or get a job sooner than before the grace period ends, I suggest paying down principal sooner.
Average Federal Student Loan Rates
Below is a chart highlighting the average federal student loan interest rates between 2006-2020. PLUS loans are most expensive, followed by graduate loans, then undergraduate loans.
Student loan interest rates have come way down since about 2011 – 2012, therefore, it behooves anybody with student loans to take full advantage.
There IS No Grace Period For Some Loans
For most undergraduate Federal loans, the student loan grace period is 6 months after you graduate.
There is no grace period for PLUS loans. However, most students who take on PLUS loans utilize an in-school deferment so they are still not making payments during school.
For private loans, there is also typically no grace period, but every lender is different. Some undergraduate private loans will allow deferments, or some type of minimum payment (like $25 per month) while in school. The best private loan grace period we've seen is 9 months after graduation.
What If You Can't Handle The Payment?
When the student loan grace period is over, if you find the monthly payment to be too much based on the Standard Repayment Plan of 10 years, then consider an Extended Repayment Plan.
The Extended Repayment Plan can often extend to 15, 20, or 25 years. You'll end up paying more in interest if you go this route, but at least you will reduce your monthly payments. You can always pay extra towards principal once you start making more money.
If you are just having a temporary hardship at the end of your six-month deferment, you could also ask for a continuation of your deferment for hardship. Many student loan servicers will grant extended deferments for a variety of situations, including illness, financial hardship, and more. You simply have to call your lender and explain your situation.
Just note that the interest charge still accumulates during this deferment period.
Finally, there are debt forgiveness plans if you decide to enter into public service.
Related: What’s It Like Living Off $50K In San Francisco?
Consolidate Or Refinance Your Student Loans
Take advantage of lower interest rates by consolidating or refinancing your student loan. Credible is an easy way to get real quotes, all in one place so you can compare rates and lenders and make the most informed decision possible.
Your ultimate goal is to get rid of all your debt by the time you retire. At the same time, you want to aggressively save and invest for your future as well. If all you focus on is paying down debt, no debt is all you're going to get. But if you focus on also making more money, then your upside is unlimited.
After I graduated from UC Berkeley's Haas School of Business in 2006, I had $40,000 in student loan debt. At the time, my rate was around 6.5%. I was able to consolidate my debt and refinance it to around 3%.
After just three years, I decided to pay off the entire student loan amount because I was making more money and hated the debt. I have to say, it feels great to pay off debt. It's like throwing a monkey off your back!
Best of luck in your journey towards financial independence. It's worth it!
About the Author: Sam worked in investment banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income, most recently helped by real estate crowdfunding. He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.