| June 1, 2012

Steps to take after your student loan grace period ends

The grace period between graduation and the date student loan repayments begin is a nice financial reprieve for new graduates. This period gives them time to organize their finances, seek out employment and start amassing savings. However, the job market has been less than generous for new graduates, and high unemployment rates among young adults have made it difficult for individuals to meet their student loan obligations.

Although making payments on all bills and credit accounts is important in developing a sound financial profile, it’s even more crucial to stay on top of student loans. Unlike other types of accounts, student loans cannot be discharged through bankruptcy and lenders may take special recourse to recoup the funds, such as garnishing wages and withholding tax refunds. For these reasons, it’s important that young adults take action when their grace period is nearing its end to ensure they don’t fall behind.

The type of repayment plan individuals choose will directly impact the amount they pay each month, making it important to review loan documents and decide if the current program they are enrolled in is affordable. There are 10- and 25-year repayment plans, income-contingent programs and graduated repayment programs. In addition, young adults who are employed in certain industries may find that their employer will help pay a portion of their loans. Those who work in public service industries may also enroll in programs that allow the remainder of their loan to be forgiven after 25 years of making timely payments. Consumers can change their repayment plan at any time, so individuals should compare each option to find the one that works best for their financial circumstances.

It's also important to stay in touch with lenders when the grace period deadline nears. Representatives can elaborate on how particular plans work, give guidance on consolidating various loans and inform young adults on how to reduce their interest rate, according to Fox Business. For example, federal loan interest rates may be reduced if young adults allow lenders to automatically debit their account when the balance is due. Further, consumers who think they may miss a payment one month should contact their lender immediately. Lenders may be more likely to help young adults explore other options if they keep them in the loop about their financial situation.

Lastly, young adults who are approaching the end of their grace period should consider contacting a credit counselor for assistance when it comes to establishing a budget. Managing finances for the first time can be a shock to young adults, and working with a professional can help individuals avoid mistakes that could have severe financial and credit consequences.

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