Word of the Week

There are many financial terms and concepts that young adults should understand. Too often students head out into the real world to find that they lack the basic everyday skills necessary for financial success. Savvy Student hopes to educate our readers and will post a word of the day or explain various concepts and terms to help students become more financially literate.

Since it is nearing graduation, students may have questions related to their student loans and what to expect come May. In keeping with this theme we would like to touch on the "Grace Period" for student loans, along with "Deferment" and "Forbearance".

Once students graduate or separate from the university, the grace period of their federal student loan goes into effect. For a Stafford loan (unsubsidized or subsidized) the grace period is 6 months long. With a Perkins loan, the grace period is 9 months. During this time, payment on the loan is not required. For an unsubsidized Stafford loan, interest accrues on the date of disbursement and will continue to accrue during the grace period. For both a subsidized Stafford loan and a Perkins loan interest does not accrue during the grace period.

Deferment is a term used when payment on the loan (principal or interest) is not required or can not be made. Students can defer their loans if they are unemployed (up to three years), are attending school at least half-time, are studying in an approved graduate fellowship program or are experiencing economic hardship (up to three years). Also be advised that when deferring a loan interest rates can not be locked in. Loans can still have variable rates unless a loan is being deferred that was also consolidated (which has a fixed interest rate). For more information on deferment options please refer to the lender.

If a student does not qualify for deferment and is still unable to make loan payments, forbearance may be considered. Forbearance is another way to temporarily postpone or reduce payments if the student is experiencing economic hardship. Please be advised that interest will accrue during this period, but that the interest payment may be deferred.

If you have any questions about this post or if you want an explanation of any other terms please send a comment to sfs@brandeis.edu.

See you later,

Savvy Student