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A grace period is a specific amount of time before loan repayment begins

A grace period is a specific amount of time before loan repayment begins

A grace period typically follows this type of a change in student status. Most grace periods last between six and twelve months, depending on interest rates and the type of loan.

  • Subsidized and unsubsidized Stafford Loans have grace periods of six months after graduation, during which time students can organize finances and find jobs. The difference, however, is that interest continues to accrue with unsubsidized loans, while there is no interest charge for subsidized loans until the day the first payment is due.
  • Repayment of PLUS loans starts sixty days after the final loan disbursement; however, interest accrues as soon as you receive the first disbursement
  • Perkins Loans allow grace periods of nine months.

At the end of the grace period, if the lending agency has not already contacted them, students are responsible for contacting the agency carrying their loan to inquire about repayment schedules and methods. Loan payments are usually made on a monthly or quarterly basis. As a borrower, you are responsible for making these payments on time. If you are very late or fail to make payments, your loan will become delinquent. Delinquency is defined as failing to make loan payments when they are due, and your loan will remain as such until the overdue balance is settled or other arrangements are made. Other arrangements for loan repayment are discussed within specific loan sections later in this report.

Loan Defaults

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If monthly payments are delinquent for six months (180 days), or quarterly payments have not been made for eight months (240 days), your account is then in default. Once a loan is in default, it is purchased by a credit agency that collects the loan money directly from you. Borrowers who allow their loans to reach this stage are subject to the following restrictions:

  • Borrowers will no longer be eligible to receive state or federal financial aid assistance
  • The loan(s) will be referred to a collection agency
  • Loan payments may be deducted from your paycheck
  • The IRS may hold your tax refund and use it for loan payment
  • Your credit rating will go down, making it potentially difficult to be approved for car and house loans or establish other forms of credit
  • Borrowers are subject to possible legal action for retrieval of payment

There are several options to prevent you from defaulting on your loan(s). Guarantee agencies offer borrowers the chance to defer payments for financial hardship and other reasons, and there are even situations in which a portion of your loan balance may be forgiven. Keep your loan agency informed of your financial situation. Loan officers want to work with you to prevent delinquency or default.

Student Loan Consolidation

Loan consolidation is a repayment option for students with multiple outstanding loans. Consolidation can help you avoid default or delinquency. If you borrowed money from several different state and federal loan programs to cover the cost of your education, you may be able to consolidate those loans into one. Consolidating your student loans will most likely lower your monthly payments and make the repayment process simpler because you only make one monthly payment.

Eligibility for the government’s Loan Consolidation Program depends on the amount of money you owe and the types of loans you have received. Students must have borrowed from one or more of these programs:

The interest rate on consolidated loans is no more than 8.25 percent for Stafford Loans and no more than 9 percent for Perkins Loans. Sometimes, however, a loan agency averages the interest rates from all your outstanding loans and uses that rate, which is typically higher than 9 percent. The total amount you owe, interest rates, and the amount of your monthly payments are determined by the agency that carries your loans.