Positive Outcomes for Grace Period Borrowers: A Call to Action

Submitted by: Shannon Cross, USA Funds Account Executive

There’s an ancient proverb that says the journey of a thousand miles begins with a single step.

Educating your borrowers during their student loan grace period is the step that starts their repayment journey off on the right foot.

What’s the grace period?
Most borrowers of subsidized and unsubsidized loans qualify for a grace period of six months after their last date of at-least-half-time enrollment. During grace period the borrower does not have to make any payments, and certain borrowers who qualify for an interest subsidy won’t accrue any interest during this time either.

The day after grace period ends, the borrower officially begins repayment. Typically, unless the borrower qualifies for a deferment, the first loan payment is due within 60 days of beginning repayment.

The grace period is available only once for each loan. If a borrower uses the entire grace period on a loan and then returns to school at least half time, for example, then that student will not qualify for any further grace period when leaving school again — and immediately will enter repayment. Note, however, that if a student uses only a portion of the grace period before returning to school at least half time, then that student once again will qualify for the entire grace period upon leaving school again.

Why reach out during grace?
Here are some other reasons why grace period is a perfect time to reach out to borrowers:

·         When students leave school, they’re done with their studies and other distractions of college life and can focus better on the student loan repayment that’s about to begin.

·         The longer borrowers are out of school, the more difficult they are to contact for counseling. Over time they move, and they change their email addresses and phone numbers.

·         The loans of borrowers in their grace period are still in good standing, so those borrowers are less likely to want to avoid communicating with you. You’re more likely to have their focus, their trust and their attention.

How do you create positive outcomes?
Here are some ways to capitalize on borrowers’ grace period to prepare them for successful student loan repayment:

Educate your students about repayment plans early and often. As you think about counseling on repayment plans, consider all the options you have for connecting with students about the issue — especially during their grace period.

·         Develop a strategy for grace period communication. Take a close look at your current approach. When should you reach out, and how often? What’s the most effective way to reach your school’s students: phone calls, letters or emails? The best strategy varies according to student population.

·         Provide multiple opportunities for updating contact information. You can’t help borrowers if you can’t find them. So identify how and where student contact information is stored and maintained. Consider how you’ll update your borrowers’ contact information over time.

·         Ask helpful questions when counseling grace borrowers. Borrowers typically respond to a variety of questions to help determine which repayment plan will work best for them. Adopt this approach at your school, focusing on questions that get borrowers to think through what they already know and what they need to learn.

·         Consider outsourcing borrower communication. If you’re wondering how and when you can possibly fit all of these ideas and strategies into your already busy day, then consider partnering with an outside organization on communication with grace period borrowers.

For additional information and best practices for contacting and counseling borrowers during grace periods, visit www.usafunds.org.