Your Grace Period Is Up; Are You Ready?

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You’re probably not celebrating your grace period ending quite as much as college ending.

Congratulations, Class of 2013! It’s time for those of you with student loans to begin repayment. Are you ready?

When I graduated in 2008, I was admittedly a bit in the dark when it came to the simplest of financial decisions. Should I consolidate my federal student loans? Which payment program should I choose? And what about the private ones—can I consolidate those as well?

Of course, these are still relevant questions today. Luckily, there are now resources to help make payment easier for you.


Flexible Repayment Options

Today, federal student loans come with great long-term repayment resources if you’re just getting started, as well as potential lifelines if you’re still looking to take the first step in your career.

If you’re eligible, the income-based repayment plan (IBR) or the newer Pay As You Earn option may greatly decrease your loan payments. We covered the differences between these before, but in short, they can lock you into monthly payments that could be as little as 15% and 10%, respectively, of your discretionary income. You’ll have to reapply annually. Both also offer forgiveness on your remaining balance after 25 or 20 years. Pay As You Earn is largely for borrowers with newer federal loans, so look to see if you meet the special eligibility requirements.

When you enter repayment for the first time, federal loans will automatically be enrolled in the 10-year standard repayment plan. However, be sure to learn the ins and out of potential different options.

Pay As You Earn

Income-Based Repayment (IBR)

Income-Contingent Repayment (ICR)

Loan Forgiveness

Thinking of working for a qualified nonprofit or public service organization? There’s a Public Service Loan Forgiveness program that could eliminate all or a portion of your debt if you meet certain eligibility criteria.

One requirement of this program is that only Direct loans can be forgiven. For this year’s graduates, most if not all of your federal student loans will likely still be part of the legacy Federal Family Education Loan Program (FFELP). This means they’re not Direct loans, wholly owned by the Department of Education.

Don’t worry if that’s the case for you. You can consolidate FFELP loans or Perkins loans into Direct loans to make them eligible for forgiveness. You can start that process by visiting the Direct Consolidation Loan Site. (Note that Perkins loans come with their own forgiveness options that take as little as 5 years—or maybe even less—and you will lose these by consolidating.)

If you’re not sure which types of federal loans you have, verify with the National Student Loan Data System (NSLDS®) that your loans are William D. Ford Federal Direct Loans.

Private Loans

Repaying and consolidating private student loans is a totally different animal and not nearly as straightforward as federal loans. Navigating private student loan repayment is often a needlessly challenging endeavor, as they tend to have fewer repayment options, offer limited flexibility for borrowers who fall into financial distress, and sometimes leave you with multiple servicers to contend with.

Regarding consolidating, ask your servicer about options and get organized. In the end, private loan repayment affects your ability to repay the federal loans.


Now that your grace period is over, you have some decisions to make. However, it doesn’t have to be daunting. If you’re reading this, you’ve hopefully found a little help. For more, check out the SALT Repayment Navigator; it’s a great resource for understanding your repayment options.

Questions? Leave them in the comments. 

(Photo: Nickolay Khazanov)

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