Graduating college? Get ready to start repaying federal direct student loans the moment your dean hands you a diploma. The reason: Congress took away your no-payment grace period. In the U.S., you can get student loans directly from the federal government. You can also borrow from a private lender such as a bank. Until July 1 2012, (the “cutoff date”) the standard grace period on direct loans was six months. Lawmakers repealed grace periods for loans granted after this date. Federal direct student loans made before the cutoff keep their grace periods.
Federal Direct Student Loans
In 2010, the Health Care and Education Reconciliation (HCER) Act reformed federal student loans. It excludes private lenders from making federally guaranteed student loans. Instead, the federal government assumed this task. The Act rids students of the “middlemen” in the federal loan programs. It also charges lower interest rates and caps the size of monthly payments.
Grace Periods for Federal Direct Loans
The 2012 law removed the six-month grace period for direct loans to undergraduate students. Loans issued after the cutoff date require monthly repayments right after graduation. The HCER ACT also affected graduate students. Attendance at a graduate school is no longer an excuse for delaying loan repayments. However, the Federal Direct Loan Program has options for strapped students. You might qualify for one of these income-based repayment plans.
Private Student Loans
Private student loans vary by lender and type. It really pays to shop around. Almost all private school loans have variable interest rates. Many offer no grace periods. School loans deliver funds directly to the school. In contrast, consumer education loans are not tied any given school. Some private lenders still offer a six-month grace period, others don’t. Even those that do may charge interest during the period and add it to the loan.
Are you unemployed or pressed for money? You can delay federal direct student loan repayments. Interest will continue to build, creating higher or longer-term monthly payments. The feds offers several income-based plans. These reduce monthly payments. They also stretch out the repayment period. Private lenders don’t have to offer repayment choices. In fact, they can sue in court to get back their money. Always find out a lender’s rules before signing on the dotted line.