What is student loan grace, anyway?

“Grace”

What a nice word that is. We all want grace in life from friends, family, and strangers on the road when we make the occasional questionable lane change in traffic. Who doesn’t like grace?

If you have ever taken out student loans, you’ll know that there is a grace period for repayment. This is typically a six-month period of time where you do not need to make any payments on your student loans. The clock for grace usually starts ticking right as you graduate. The idea behind it is to help new graduates have space and time to find a new, steady job so when the first round of payment does become due, that new professional should have had ample time to get financially stable to start making those payments on time and in full. Sounds like a great system, right? How nice of those loan providers to provide ‘grace’ to these new graduates! If only life were that good.

The problem with the grace period in student loans is that it does not save you any money. Quite the opposite. Say you’ve got $50,000 at 7% interest in loans when you walk across the stage at graduation in May. You’re feeling good because your first payment isn’t due until mid-November. You’ve got all kinds of time, right? Well, this is what your balance will look like in the following months:

June – $50,291.66

July – $50,585.02

August – $50,880.09

September – $51,176.89

October – $51,475.42

November – $51,775.69

And look at that. While you were enjoying your time of ‘grace’, you now owe an extra $1,775.69 to your student loan provider! What a ripoff! How can you avoid this?

Well, you can’t stop the hands of time, and you also can’t stop the effects of compounding interest. However, the best way to combat growing interest on your loans is to pay early and pay what you can afford.

If you are fortunate to get a good job right away after graduation, you’ll probably be thrilled by getting your first few paychecks. After living on a shoestring budget, you feel like you can finally breathe! And you should, you’ve accomplished a lot. But instead of spending your entire paycheck, take honest stock of your budget and figure out what wiggle room you can come up with and pay that towards your loans, even during your grace period. This will make a big difference in the interest that we saw racking up in the above example! Even make a payment of $100 or $200 during grace can help tremendously in your road to getting that debt repaid.

When it comes to student loans, grace is far from as good as it sounds. Keep an eye on your loan balances even during the first six months after graduating, and try not to splurge on purchases. Be realistic about your budget and what you can contribute each month or each paycheck toward debt repayment, and be faithful in doing so. You will see the results with your persistence!