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TheStreet Open House

Student Loan Grace Periods Coming To An End





While all the focus has been on student loan interest rates. Congress has failed to renew one of the most important student loan benefits for undergraduates: the six-month grace period following graduation. With the rate of unemployment being historically high, this couldn't have come at a worse time.

Federal student loans have a fixed interest rate of 3.4 percent across the board, regardless of degree or income potential. As of July 1, that interest rate was scheduled to double to 6.8 percent if Congress were to let the low rate expire. Both the President and the Republican candidate wanted to see Congress extend the low rate. The politicians obliged, but not without failing to renew other benefits. For undergraduates, there will be no more six-month grace period at graduation. For graduates, interest will not be deferred while in college.

Keep in mind these changes affect only new loans. If your loan originates on June 30, 2012 or prior, you still have these benefits. Only loans originating July 1, 2012 or later will be subject to the new rules and fewer benefits.

The six-month grace period was an automatic reprieve from needing to worry about finding money for student loans during the time recent graduates are making the transition into real adulthood. This transition involves finding and starting a job, finding a place to live, and possibly managing money for the first time. With the first payment for student loans due right after graduation, pressure is higher .

Parents who are concerned about their kids needing to move home after college rather than living on their own should now be more worried. Monthly student loan repayment may be a higher bill than rent, making it more difficult even for students who do find entry-level jobs in their fields. While mature employees in their fields might joke about recent graduates' expectations for high salaries and immediate responsibilities, these will now be necessary in order to handle student loan payments right away.

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