Say goodbye to the days of low-interest loans, because now interest starts again the day after your grace period ends.
What is a grace period?
The grace period is a time extension given to borrowers on the day of their loan’s due date. This allows borrowers to work out any problems with their payments or financial goals before taking on the usual consequences that come with late payment.
A grace period is a time between when an account balance becomes due, and when it must be paid. It typically happens at the end of a payment period, or in some cases at the end of a month. The grace period may last a few days, weeks months, or years depending on the time frame.
Federal student loan interest rates
Starting July 1, interest rates on loans made to students and parents will be increasing. The current interest rate before raising is 3.76%. There are some protections based on income that can reduce how much the student loan interest rate increases.
Because of tax reform, interest on federal student loans will start again on the day of grace. The result is that students who are just graduating may not be able to take advantage of the 3.4% interest rate this year.
What are the consequences of interest rates going up?
The interest rates for new loans are back up to 6.8%. This is a huge blow to poor students who are already drowning in debt. If they want to keep the same rate, they must continue to make $100 payments on their loan every month.
Interest rates are going up, which means the amount of interest you pay will go up as well. This makes student loans quite expensive. The day after the interest rate changes many students will be forced to make tough choices when they already have similar options available in the form of a grace period or forbearance.
Alternatives to paying off your loans with high-interest loans
One way to start paying off your student loans is to do it through the grace period. That’s just not an option on programs that require you to pay interest from the moment you start repaying your loan. So what are some alternatives? Some institutions offer student loan repayment schedules that allow for partial or full reimbursement of interest during the grace period. Another option is opting for a forbearance instead of making payments, which could be beneficial both financially and emotionally.
Many college students use loans to help pay for their education. However, the interest rates on these loans are quite high. One way to avoid this is to take a five-year loan and then cancel it after two years.
There are many students who have student loan debt which is hard to manage. The interest on these loans can be burdensome, and borrowers have to pay off their debt with a “grace period” of three months in which they do not contribute interest.
Students have been enjoying some relief from owing on their student loans, but the day of grace is over. The repayment schedules for loans made after July 1st will be as follows: 10 years, 15 years and 20 years.