What Can You Do during Grace and Deferment Periods?
The primary distinction between a grace period and a deferment is when a borrower is eligible for each delayed payment option available on a particular loan. A grace period is built into a loan. During this time, the borrower doesn’t have to pay back the loan and isn’t punished if they don’t.
A deferment is when a borrower has the condition of the borrower’s loan(s) temporarily suspended. There are specific programs that might allow you to have your payments deferred.
Payments may be made during the grace or deferment periods, but they are not required. When student loans are repaid during grace periods and deferments, the possibility of capitalizing and compounding interest is reduced. You can reduce the balloon payment at the end of those loans by deferring payments on other loans.
What Can You Do During the Grace Period?
A grace period is when a borrower is not penalized for defaulting on a loan.
For example, let’s say you borrowed $15,000 to complete your studies at a private school. You agreed to pay the loan back over a 10-year term with a 5% interest rate.
That means you will make monthly payments of $142.86. When you get back to work, you have to stop for a while to help your sick mother. You miss a few months of work and make no payments on that $15,000. Your loans are currently in the grace period.
If you did not have a grace period, the lender would take a couple of steps to recoup their money. The lender would contact you and tell you that you need to make a payment or be considered in default. If you don’t make a payment, the lender will send you to collections. With a grace period, you can take care of yourself and your family without needing to make three payments before you can start working again.
What Can You Do During a Deferment?
A deferment is when a borrower has the condition of the borrower’s loan(s) temporarily suspended. There are specific programs that might allow you to have your payments deferred.
Payments may be made during the grace or deferment periods, but they are not required. When student loans are repaid during grace periods and deferments, the possibility of capitalizing and compounding interest is reduced. You can reduce the balloon payment at the end of those loans by deferring payments on other loans.
Special Considerations
Here are a couple of things to keep in mind if you plan on using the grace period or a deferment:
Borrowers with federal and private loans should know that federal student loans typically offer more extended grace periods and deferment periods than personal student loans. Most federal student loans pay all interest that accumulates during a deferment period.
It’s essential to take full advantage of deferment benefits, which you can learn more about in the Federal Student Aid Guide.
Bottomline
Convince your lender to grant you a deferment. It can be a real financial advantage for you, especially if you’re in school or returning to school with a part-time job. There are many things you can do in your deferment, but the most important is to keep a good payment history. One day, you will be able to make those payments, and you will be thankful you took care of your student loans.
Magnolia Finance offers a variety of ,personal loans in Memphis, TN. We offer flexible amount deals that suit your needs. Our first priority is your satisfaction, and we hope to earn your future business by providing a positive experience, as former borrowers can quickly re-open their accounts following a brief update process. Contact us today!