Say Goodbye To The Student Loan Grace Period

Though it looks like federal lawmakers will finally come to an 11th-hour deal to keep interest rates on federal Stafford student loans from doubling, certain programs that student borrowers have benefited from will be going by the wayside come July 1.

Neither graduate students nor undergraduate students will have a six-month interest-free period after finishing school. And graduate students will now be required to pay student loan interest while still working on their degree.

In total, it’s expected these changes will cost students an additional $20 billion over the next decade.

The changes apply to new loans disbursed starting July 1, 2012, and through June 30, 2014.

No more grace period on student loans [Reuters]

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  1. Ekopy says:

    So how is temporarily reducing interest rates in exchange for permanently getting rid of the grace period supposed to help recent graduates?

    • rugman11 says:

      It’s not a trade. All of those provisions were set to expire and the lower interest rates was the only one they decided to save.

    • Megladon says:

      It helps the banks, and thats all republicans care about.

      • jojo319 says:

        I’m a Republican and I know that’s all I care about.

      • CygnusTX says:

        If anyone cared about the students, the student loan program would be shut down. Because of this program, colleges and universities have freely raised tuition at many times the rate of inflation for decades. School is now ridiculously expensive because there is money there. Who cares that the students get saddled with debilitating payments for 20 or 30 years? Clearly not you.

  2. MathMan aka Random Talker says:

    Remember, Graduate loans are already fixed at 6.8% so they really got the short end of any of these deals.

    How about a switch where all current ungrad loans go to 6.8% and grad loans go to 3.4% for a little while. Maybe 2 years, and then it switches back. Usally interest rates are set according to one’s ability to pay back the loan.

    Can someone educate me and show the research that shows graduate students are more likely to delay / miss payments than undergrad students? I’m not being sarcastic with my last question. I really am curious.

    • AtlantaCPA says:

      I wonder if they base it off of expected earnings instead of risk. So they’re assuming that Grad students can afford higher interest payments?

      It sucks though, and having interest accrue while you’re still working on your degree sucks even harder.

      • MathMan aka Random Talker says:

        Yeah, I get what you’re saying in that it COULD be their logic but as – I’m assuming a CPA from Atlanta knows – this is exactly the opposite way most organizations determine interest rates on loans. Losest income level and higher rate of default = more risk =>higher interest rate on loan.

        However, since you can never truly default on government student loans, I guess that changes the assumptions.

        BAH, who knows their logic. I just know that 6.8% sucks vs 3.4%.

        • dwtomek says:

          It’s probably a waste of time to assess based on risk when the government has made sure that there is no risk to begin with.

    • Velifer says:

      If you can’t get someone else to pay for your graduate education, you probably shouldn’t be there.

      • MathMan aka Random Talker says:

        huh? I am not fully following what you said…. If I can’t get someone ELSE to pay for grad school then don’t go? So only go IF I can get someone else to pay? huh?

        • chargernj says:

          he’s saying that if you can’t get a grad assistantship or something similar then you shouldn’t go to grad school.

          Of course if everybody did that there wouldn’t be any grad schools.

  3. dulcinea47 says:

    I am confused as to how having to start repaying earlier and having to pay interest while still in school is going to cost $20billion more. You’ll just be paying what you would have been paying already, only sooner. And in the case of grad students the interest won’t be capitalized which should actually *save* you money in the long run.

    But, I am bad at math, so maybe I have that all wrong.

    • sagodjur1 says:

      I don’t know how they calculate the $20 billion, but theoretically, if you have the money to pay off the interest while attending grad school, that’s money you could have spent paying down the loan amount itself which would reduce how much you pay in interest later. I don’t know if that amount times the number of grad students times the average debt amount would equal $20 billion.

    • SirWired says:

      Subsidized Stafford loans had the interest covered by the Feds until re-payment started. Since that is no longer the case, the students will have to pay instead.

    • PunditGuy says:

      I’ve been in grad school for about 7 years, and my payments on my undergrad loans have been deferred and no interest has been accruing on them. That apparently changes July 1, which means that the amount I owe will start increasing at that point even though my deferral isn’t up until I graduate next May.

    • JJFIII says:

      Ok, you buy a car. They tell you, interest does not start accruing until 6 months from then. Do you think you lose some oof the interest over that time period when they are not charging it to you?

  4. az123 says:

    There are still plenty of other things in place, like forbearance and income based payment plans… So not going to be causing people to mess up credit scores or default, but these are eliminating nice things, and oft abused things. The grace period was always nice to help people who get a new job, but with the other programs if you have a low paying job or no job you can avoid going to default or destroying your credit by filling out paperwork.

    The pay interest while in school thing I agree with. There were lots of professional students I knew when I was in grad school (which was over 10 years ago) and several of them still are. The problem is you need to be enrolled half time to avoid making payments (interest or otherwise) So people would get massive bills from high end undergrad and just keep taking classes forever and ever to avoid paying back their loans, while living the broke student lifestyle they so enjoy. I think this is a good motivation to get people to stop skirting the system this way

    • chargernj says:

      suprised they haven’t reached their aggregate limit yet after 10 years. Maximum amount of student loan debt is $138500. That figure doesn’t include private loans, only federal.

  5. Snapdragon says:

    Boy, it’s a good thing jobs are so easy to come by!

    Oh, wait…

    • Stickdude says:

      Enter text…

      • Stickdude says:

        Ok, that’s twice now the site has just randomly submitted a blank comment while I’m still typing it.

        If any editors read the comments – the new comment system still needs work.

  6. TuxthePenguin says:

    Lets be honest with this – the grace period was a period in which you did not have to make payments but interest still accrued. If students begin making payments immediately, they will actually pay less overall as they won’t be paying interest on that first six-month’s interest.

    • smbizowner says:

      and lets be really really honest. How many grads are leaving school with a JOB?? It took my kid 4 months to find a job even with a science degree. Granted he could have taken the first job offered (working in the fracking industry in WVA) but did his homework and found a job in his field of expertise making good $$. All that can take some time.

  7. daemonaquila says:

    That’s going to end a lot of people’s educations. There’s no way that most grad students can pay their loans while attending grad school. Also, it’s going to result in a ton more defaults, since most grads don’t have a job right off the bat and will have no way to pay their debts from the moment they graduate. Nice way to increase student loan defaults and recapture LESS of the money, dorknozzles!

    • dwtomek says:

      Bah! Students just need to toughen up and stop whining. Clearly they just drew the short straw on this one and need to deal with it. I’m surprised you didn’t notice this.

  8. PragmaticGuy says:

    Hey…they should be paying when they graduate. My daughter has loans that she didn’t start paying right away and all it did was tack on six months interest. Since I cosigned (yeah, I know but she’s my daughter) on the largest of them guess who’s paying that one.

    • davematthews013 says:

      No offense to you Pragmatic, but I am a graduate with a student loan cosigned by my dad and I didnt start paying it right away BUT he hasnt had to pay a single dime on that loan because that is called responsibility and accountability.

      TLDR: That’s on you, man. Good Day.

  9. Extended-Warranty says:

    But how am I expected to go away to school where I want and not work. WAAAAAHHHH!

  10. do-it-myself says:

    I’m absolutely disgusted. I feel that they are doing this to force even more students to default on their loans, which in turn would be fuel for politicians to belittle the education system and students even further.

    However the article title is a bit of a misnomer. Basically, loan payments themselves will still be deferred as you’re in school as an undergraduate. Also, as a graduate student you will also be in deferment of payments, however subsidized loans will no longer exist. This means interest accrues from the start, but that doesn’t necessarily mean that students have to pay while in school, it’s just a smart suggestion to do so, which means you’ll have to pay a little less overall. While I was working as a graduate assistant, I choose to take out less loans because I was receiving a stipend and tuition reimbursement. I only took the subsidized which was enough to survive on. It doesn’t matter too much that the interest grace period is going away. It’s the repayment grace period which matters more here. It’s just really bad right now because it’s harder to find a job these days. You can defer federal student loan payments for up to a total of 3 years after graduation. I doubt this will change. The only difference is the freebie 6 months students used to get before they had to start using their forbearance time.

  11. vliam says:

    This can only be a good thing.

    Maybe students will start voting.