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Student Loan Grace Periods are NOT Going Away

You may have recently heard a bit of false news: that there will be no more grace periods on student loans. Despite the fact that the Chicago Tribune ran a headline to that effect on Thursday of last week, it’s actually not true. The truth is that that interest will now begin accumulating on student loans sooner, but the “grace period” that postpones any required payments until 6 months after graduation has not been eliminated.

The inaccurate story began when the Chicago Tribune published an inaccurate headline (which they later fixed). Here’s a screenshot of their original headline:

No More Grace Period on Student Loans

This quickly spread to other media outlets who also began reporting on “the end of student loan grace periods.”

For example, The Street, a digital news site that covers financial markets, published an article titled “Student Loan Grace Periods Coming to An End,” saying that “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… With the first payment for student loans due right after graduation, pressure is higher .”

Upon reading these headlines and articles, students and former students have become justifiably worried because the grace period has been such a lifesaver for so many people.

Conversations and expressions of frustration broke out on Twitter, as people wondered about the negative impact of this new change:

Their concern is understandable. With the economy still struggling and job prospects for recent grads far from rosy, it’s important that graduates have some breathing room before they have to make those first student loan payments. That’s why taking away the grace period at this time would have been crazy.

And that’s why we’re glad that these stories were wrong. But how did such an inaccurate story get reported in the first place? And what is the real story here?

Let’s start with the latter question: The real story is that Congress did in fact make changes that will cost students more money over time. But the changes began last summer, not last week, and they do not eliminate grace periods. Here are the two main changes that will affect students who borrow money to pay for college or graduate school after July 1 of 2012:

1) The federal government will no longer pay the interest that accumulates on subsidized undergraduate student loans during the 6 months after graduation. In other words, you would still have a grace period (no monthly payments for 6 months), but interest would start to accumulate immediately after graduation.

2) All graduate student loans will now begin accumulating interest immediately, whereas before, graduate students could apply for subsidized graduate student loans that did not begin accumulating interest until 6-months after they graduated.

So how did this result in a story about “No More Grace Periods”? Well, we can piece together how that inaccurate meme was created: First, the article we mentioned above was originally published by the Washington Post on June 27 (with an completely accurate and headline).

It then appears to have been syndicated by Reuters, which would explain how it came to be posted on the Chicago Tribune website. Next, a headline writer for the Chicago Tribune must have incorrectly interpreted the contents of the article and came up with the infamous headline that got so much attention. Other sites followed their lead, and soon the story was being spread throughout the country.

Interestingly, the Chicago Tribune has now re-written their headline to reflect the reality of these student loan changes:

chicago tribune headline - updated - Copy

Did you catch the difference?

Suddenly they are not claiming there are “no more grace periods on student loans,” but rather that there is “no more grace period on student loan interest,” which is true. At least they caught their mistake!

The bottom line is that the “Don’t Double My Rate” campaign worked to prevent the 3.4% interest rate from increasing, but future students will still have to pay more interest on their loans because of the changes mentioned above. In the meantime, we’ll keep an eye on the latest news related to student loans and update you on what happens next.

One Response to “Student Loan Grace Periods are NOT Going Away”

  1. Patty Stewart says:

    The difference between “no more grace period” and “interest accumulation will start immediately” is that if there were no more grace period on repayment, you might incur penalties and fines if you did not start making payments immediately. With the repayment grace period, you can wait 6 months before making your first payment – but interest was accumulating.

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