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Personal Finances / Paying Back Student Loans


Subject:  Re: Grace Period Date:  6/27/2001  6:58 PM
Author:  W505a Number:  371 of 4855

I was wondering if anyone has any thoughts about my situation...I graduated in 1998, and went on within 4 months to a graduate fellowship. I have been doing this fellowship for the past 3 years, and defering my loans. The fellowship and the deferment are over at the end of this month. Since a graduate fellowship is considered an in-school deferment, I was under the impression that I would receive a 6 month grace period after the fellowship was over. But my loan company is saying no, that my grace period was used up after I graduated with a degree and I am not entitled to a grace period even though as a graduate fellow I am considered a student. A grace period ends up being important because it will give me some time to consolidate my loans at a lower rate and apparently if you consolidate in a grace period the interest rates drop another .6%. What makes this disturbing is that this whole grace period thing seems like it is subject to interpretation by the loan companies as several people I know (who are also graduate fellows)are getting a grace period after their fellowship.

This is a Higher Education Act (HEA) question. It sounds like your lender is trying to treat the last three years as an out-of-school deferment situation, when it sounds more like an in-school one. I think the rule is that everyone is entitled to the 6-month grace period after they complete the in-school period.

Stafford Loans are under the HEA and are an "entitlement"--there is no option on the lender if it cares to acknowledge a grace period or not.

You would only get the 60 basis point favorable rate if your loans originated sometime after 7/1/1995 I think. (A period of t-bill plus 250 in-school and t-bill plus 310 out.) It sounds like you began to early to have these as t-bill + 170 and + 230. If your loans are earlier than 1995, chances are there is no "grace period differential" and in-school and out-of-school rates are t-bill plus 310. So you might be getting worked up about nothing over the rates, and the real issue is how much deferment time you get.

If you chose to consolidate these loans with Direct starting next week, I am sure someone there could help determine what the real interest rate you should be charged is. However, if you consolidated before the grace period you should otherwise have is up, that's it. The benefit of going in now, of course, is the 80 basis point "timely payer" discount everyone has been talking about. This discount may still be around after September 30---its scheduled end date--but no one knows for sure, and many of us are taking the "bird-in-the-hand" approach.

You would have to do the math whether locking in a relatively low rate is worth giving up potentially six months extra deferment (especially if it's subsidized deferment.) Usually, (believe it or not,) the lower rates win out when the math is done.

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