A grace period is a specific duration of time where a student loan borrower is not required to make payments on their student loan debt. But what happens after the grace period ends if a borrower still is unemployed or underemployed?
During our webinar about Student Loans 101 (Repaying), a recent graduate asked:
How does the 6-month grace period work if the student’s first job out of college isn’t the ‘career’ job, just making $10 to $15 per hour?
The 6-month grace period begins when the student graduates or drops below half-time enrollment. It is not affected by the borrower’s employment or underemployment. In fact, part of the purpose of a grace period is to provide the borrower with time to find employment before they must start repaying their student loans.
If a borrower is still unemployed or underemployed at the end of the grace period, they may apply for an unemployment deferment, an economic hardship deferment or a forbearance for federal student loans. These deferments and forbearances suspend the repayment obligation for up to three years.
Use our Cost of Deferment Calculator to evaluate the impact of interest capitalization at the end of a deferment or forbearance on the monthly loan payment and the cost of the loan, assuming that the loan payments are re-amortized after the deferment or forbearance.
Another option for federal student loans might be to switch into an income-driven repayment plan, which bases the loan payments on a percentage of the borrower’s discretionary income, as opposed to the amount they owe. This usually yields a more affordable loan payment than standard repayment. If the borrower’s income is less than 150% of the poverty line, the monthly loan payment will be zero.
Use our income-driven repayment calculators to compare the monthly loan payments and total payments for each of the income-driven repayment plans.
- Income-Contingent Repayment Calculator (ICR). Income-contingent repayment bases the monthly payment on 20% of discretionary income, which is defined as the amount by which income exceeds 100% of the poverty line, with a 25-year repayment term.
- Income-Based Repayment Calculator (IBR). Income-based repayment bases the monthly payment on 15% of discretionary income, which is defined as the amount by which income exceeds 150% of the poverty line, with a 25-year repayment term.
- Pay-As-You-Earn Repayment Calculator (PAYE). Pay-as-you-earn repayment bases the monthly payment on 10% of discretionary income, which is defined as the amount by which income exceeds 150% of the poverty line, with a 20-year repayment term.
- Revised Pay-As-You-Earn Repayment Calculator (REPAYE). Revised pay-as-you-earn repayment bases the monthly payment on 10% of discretionary income, which is defined as the amount by which income exceeds 150% of the poverty line. The repayment term is 20 years for borrowers with just undergraduate loans and 25 years for borrowers with at least one graduate loan.
Private Student Loans
If you have private student loans, you need to call your lender directly to see what options are offered if you are struggling to make payments. Some private lenders offer options for deferment or forbearance, while interest still accrues.
Some private loan lenders also may be willing to extend your payment term and lower your monthly payment. Extending your payment term means you’ll pay more in interest overall, but you will have a more manageable payment.