Stock Market Today: Dow Leads in a Mixed May Start for Stocks

The Dow Jones Industrial Average kicked off the month with a 0.7% gain to 34,113 on Monday that came despite a weaker-than-expected Institute of Supply Management manufacturing report.

Supply bottlenecks resulted in an April reading of 60.7 – a slower rate of expansion than March’s 64.7 reading indicated, but expansion nonetheless.

“Although the composite was a fair bit below expectations (Barclays 64.5; consensus 65.0), the decline comes off of a robust March reading that was the highest since 1983,” says Barclays economist Jonathan Millar. “Indeed, components of the composite continue to point to very strong growth, which comes as no surprise, given highly favorable demand conditions amid fiscal stimulus, easing of social distancing restrictions, and ongoing progress in vaccinations.”

We’re glad to see that at least some investors heeded our advice to ignore the urge to “sell in May and go away.” But stocks weren’t exactly up across the board. The Nasdaq Composite (-0.5% to 13,895) struggled, thanks to weakness in mega-cap tech and tech-esque names such as Tesla (TSLA, -3.5%), Amazon.com (AMZN, -2.3%) and Salesforce.com (CRM, -2.9%).

“For the first time in a while there is a clear value/cyclical bias while growth/tech is under pressure,” says Michael Reinking, senior market strategist for the New York Stock Exchange. “Tech wobbled last week despite blowout numbers from the mega-cap stocks. This is especially concerning as the rate environment remains in check.”

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Other action in the stock market today:

  • The S&P 500 gained 0.3% to 4,192.
  • The small-cap Russell 2000 also finished in the black, up 0.5% to 2,277.
  • Berkshire Hathaway (BRK.B, +1.7%) held its 2021 annual shareholder meeting this weekend. Chairman and CEO Warren Buffett and Executive Vice Chairman Charlie Munger addressed a number of topics, including trimming Berkshire’s stake in Apple (AAPL) in Q4 2020. “It was probably a mistake,” said Buffett, adding that AAPL’s stock price is a “huge, huge bargain” given how “indispensable” the company’s products are to people. Also of note: Berkshire grew fourth-quarter operating income by 20%, to $5.9 billion, while cash grew 5% to $145.4 billion.
  • Domino’s Pizza (DPZ, +2.6%) was a notable winner today. The pizza chain revealed an accelerated stock buyback program, saying in a regulatory filing that it will pay Barclays $1 billion in cash for roughly 2 million DPZ shares.
  • U.S. crude oil futures jumped 1.4% to end at $64.49 per barrel.
  • Gold futures snapped a four-day losing streak, adding 1.4% to settle at $1,791.80 an ounce.
  • The CBOE Volatility Index (VIX) declined 2.3% to 18.18.
  • Bitcoin prices improved by 1.1% to $57,530.32. More impressive was the 18.6% improvement in Ethereum, to $3,300.64 (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock chart for 050321stock chart for 050321

Another Big Week of Reports … And Dividends

What should investors be looking forward to this week?

On Thursday and Friday, we’ll get the latest weekly unemployment filings and April jobs data, respectively, but throughout the week, another heaping helping of earnings reports, anchored by the likes of General Motors (GM), Pfizer (PFE), Under Armour (UAA) and PayPal (PYPL).

And given that many companies tend to synchronize their dividend and buyback actions with their earnings reports, you also can expect plenty of news on the dividend-growth front.

In some cases, those raises might be token upticks meant to secure current or future membership in the Dividend Aristocrats. But others are bound to compete with this year’s most explosive payout hikes – improvements of 15%, 20% or even 30% that drastically change the income aspect of current shareholders’ investments. Ideally, of course, investors want the best of both worlds: income longevity and generosity.

These 10 dividend stocks just might fit the bill. This group of mostly blue-chip household names offer a strong history of payout increases, a sharp level of recent hikes compared to their peers, and the operational quality to continue affording these annual raises.

Kyle Woodley was long AMZN, CRM, PYPL and Ethereum as of this writing.

Source: kiplinger.com

Dear Penny: Am I Wrong to Make My Unemployed Niece Pay Rent?

Dear Penny,

Recently, we had to move our mom to a nursing home. Prior to the move, my niece had moved in with her. My mom has dementia and is not likely to return to living at home. 

The niece was living rent-free when Mom was here. She is still staying here and still not paying. She is unemployed but has been getting unemployment. She has been there since last September. Mom went to the nursing home in February.

My brother is the durable power of attorney and in charge of expenses. We are hoping to hang onto the house. There are some savings to pay for the nursing home for a few years. When the savings are gone, we will have no choice but to sell the house.

My niece was paying a roommate a substantial sum before she moved in with Mom. She has had many months to save, and her expenses are low since she pays no rent or utilities. My brother turned off the cable, but the internet is still on. Plus there are expenses for gas, oil, electric, property taxes and maintenance. I live out of state but come back for extended visits and work remotely while I am there. I plan to send a check for the internet, electric etc. to my brother. I usually stay for three weeks or so.

Someone needs to tell the niece she needs to start paying for some of the expenses. I don’t quite know how to bring it up to her. When I mentioned it to my sister (the niece’s mother’s twin), she seemed indignant that we would expect money from an unemployed person. 

I guess I need to figure out how to bring it up to her. Before Mom went to the nursing home, there was a big argument because after Mom said she could move in, Mom then decided she didn’t want her here. After Mom was moved to the nursing home, it was my idea for the niece to be able to stay. So, I feel like I should be the one to tell her the free ride is over.

-L.

Dear L.,

When you offered to let your niece stay in your mom’s home, you didn’t absolve her of rent for life. The conversation you’re about to have shouldn’t come as a shock. Note that I say “shouldn’t” rather than “won’t” here. I suspect shock is exactly the reaction you’ll get.

Think about it from your niece’s perspective. After eight months of living rent-free, why should she have different expectations for months nine or 10?

I do think that since this arrangement was your idea, you should be part of this conversation. But as durable power of attorney, your brother is the one making the decisions. So I think the two of you should talk to your niece together.

What’s good is that you seem to be feeling moderate frustration, rather than full-blown rage at this point. Don’t let things reach a boiling point with your niece. This conversation needs to happen soon.

First, talk with your brother on what a good outcome looks like. Do you want your niece out altogether? Are you OK with her staying if she pays for upkeep and utilities, even if she wouldn’t pay rent? Or are you hoping she’ll stay and eventually pay rent at fair market value?

I’m guessing the ideal scenario is somewhere between the second and third options. It’s reasonable to expect her to pay something for rent but probably not what you’d charge a stranger, especially since you stay at the home on occasion. You and your brother should agree on a dollar amount that she’ll be responsible for and any other duties you need her to take on.

Regardless of your ideal outcome, give her a heads-up that this discussion is coming. Schedule a time to talk about how to handle expenses moving forward so that she doesn’t feel blindsided.

Try not to lecture her about all the money she should have been saving since September. I get your frustrations. But really, it’s irrelevant at this point.

Keep the conversation forward looking. Show your niece what it’s costing to maintain the home and ask her what she can afford to contribute. She’s getting unemployment, so she should be able to kick in something, even after groceries and other expenses. You can offer to help her make a budget or revamp her resume. But ultimately, you need to set a very clear expectation for what you need from her going forward.

What I’m hoping is that a little pressure will give your niece some much-needed motivation and that more extreme measures, like eviction, won’t be necessary. Sometimes a looming deadline forces us to act.

This will be a tough conversation. You had good intentions, but now you have to be the bad guy. Please don’t kid yourself by thinking this situation will change on its own.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

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Source: thepennyhoarder.com

Do I need a consumer statement on my credit report?

If you’ve experienced financial distress or want to highlight errors on your report, a consumer statement may be used to explain derogatory credit information to credit bureaus and/or potential lenders. While these statements won’t hide negative credit histories, they may help answer some questions on your report to eliminate concern and give a lender the clarity they need to extend you a line of credit or loan. 

If you’re wondering if adding a consumer statement to your credit report is right for you, read on as we outline exactly what a consumer statement is and a few instances where you may need one.

What Is a Consumer Statement? 

A consumer statement is a 100-word statement (200 words for residents of Maine) that can be added to your credit report to address any negative information shown in your credit history. Once placed, potential lenders may review this statement to help clear up any concern they have about your creditworthiness or ability to pay back a loan. 

A consumer statement should clearly explain any negative history or discrepancies on your credit report. See an example of a consumer statement below: 

“On March 30, 2020, I was laid off from work as a result of the coronavirus pandemic and related shutdowns. Due to this unexpected job loss, I fell behind on my monthly debt payments. I found employment on May 12, 2020, and I am working to catch up on all missed payments. While my credit rating was in good standing before losing my job, I believe these late payments associated with [name of creditor] account are not a true reflection of my creditworthiness.” 

Once a consumer statement has been added to your credit report, it will be visible to a lender or creditor each time they view your credit report. Once the financial situation on your consumer report has been straightened out, you can elect to remove the consumer statement so it no longer shows up on your report. 

Where does a consumer statement go? A consumer statement can be found on your credit report under your personal information.

When to Add a Consumer Statement to Your Credit Report

There are a few reasons why you may consider adding a consumer statement to your report: to provide context for derogatory information on your credit report or to dispute any errors that may be negatively impacting your credit. There are two basic types of consumer statements that can be added to an individual’s credit report: 

General Consumer Statements

These are used to provide background information on your entire credit report, and they can stay on your report for up to two years. An example of when to add a general consumer statement on your report might be after an instance of identity theft or financial hardship as a result of an illness. 

Account-Specific Statements

These statements apply to individual accounts and can be used to explain items that may be negatively impacting your credit report. Account-specific statements can remain on your credit report until the accounts they’re associated with are removed. An instance where someone might include an account-specific statement on their report might be to address a late payment that was made due to a mailing or shipping delay. 

When should I include a consumer statement on my credit report? General consumer statements include identity theft, delinquency on multiple accounts as a result of extended unemployment, delinquency due to natural or declared disaster or financial hardship due to illness or injury. Account specific statements could include response to fraud, a problem with a lender or a dispute on your credit report that was denied.

Frequently Asked Questions About Consumer Statements 

How Do I Add a Statement to My Report? 

If you’d like to add a consumer statement to your report, you can do so free of charge. You’ll need to write a 100-word statement (200 words in Maine) and submit it to your preferred credit bureau. You can do this by sending a letter along with your statement to their address or submit your consumer statement online. You’ll need to look online or call your credit bureau of choice for instructions on how to add a consumer statement to your report, as each bureau may have its own guidelines.

Does a Consumer Statement Hurt My Credit Score? 

A consumer statement will not change any accurately reported information on your credit report and is unlikely to impact your scores. However, providing an explanation for your financial distress or poor credit history may help a creditor or lender better evaluate your creditworthiness or ability to make payments on time. 

Can I Remove a Consumer Statement? 

If your credit history or financial situation has improved, you can elect to remove a consumer statement so that lenders and creditors can’t see it on your credit report anymore. It’s best to remove a consumer statement as soon as it is no longer necessary, as it may notify potential lenders that you had a negative credit history in the past and could be a cause for concern when evaluating your creditworthiness. Typically, you can request a removal in the same way you submitted your consumer statement to the bureau. If you have any questions, contact the credit bureau directly. 

For more insight on ways to improve your creditworthiness, contact us today for a free personalized credit consultation.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Income-Driven Repayment Plans – Pros & Cons of IDR for Student Loans

Some borrowers feel the pinch of monthly student loan payments, but they’re able to manage them. For other borrowers, their debt is so large and their income so low it may be a significant struggle to afford their monthly payments while still covering necessities like food and housing. For these borrowers, income-driven repayment (IDR) plans can be a lifesaver.

I know this struggle firsthand. When I graduated with my Ph.D., my monthly student loan payments were higher than my take-home pay as a teacher. There was simply no way I could have paid them on the standard 10-year repayment plan. So, I enrolled in an IDR plan, which tied my monthly payments to my income, making them much more manageable.

If you’re also struggling with making your student loan payments, an IDR plan may seem like an attractive way to get some relief. Typically, IDR lowers your monthly student loan payment. It can even result in forgiveness of a portion of your loans if you have any remaining balance after making the required number of payments.

However, while there are definite advantages for some borrowers, not everyone benefits from enrolling in an IDR plan. Before you decide to enroll, carefully weigh the pros and cons against your own debt and income levels.

Advantages of IDR

For student loan borrowers with high balances relative to their income or unmanageable monthly payments, IDR plans can offer some benefits.

1. Your Monthly Payment Could Be Lower

If you’re struggling to make your monthly payment, an IDR plan can help. If you have a low income relative to your loan balance, your monthly payment will be lower than what it would be on a standard 10-year repayment schedule. For many struggling borrowers, that could mean the difference between being able to manage their debt and facing default.

2. Monthly Payments Are Tied to Income & Family Size (Not Loan Amount & Repayment Term)

Payments become more manageable on an IDR plan because they’re tied to income and family size, not the amount owed. And if you lose your job, your hours are cut, or you welcome a new addition to your family, you can have your monthly payments recalculated. They can be as low as $0 if your income is barely above the poverty level for a family of your size or if you become unemployed.

3. Your Loan Balance Could Be Forgiven

If you owe a very high amount relative to your income, chances are you’ll have a balance remaining after 20 to 25 years of income-based repayments. In that case, you become eligible to have the remainder forgiven. If you make 120 payments while working full time for a qualifying nonprofit or government agency, you could have your loans forgiven in as little as 10 years through Public Service Loan Forgiveness (PSLF).

4. You Could Pay Back Less Overall

Borrowers who take on six figures or more of student loan debt but never achieve an income that allows for full repayment of that debt could end up paying back far less on an IDR plan than on the standard 10-year repayment schedule. In fact, they could even end up paying back less than they originally borrowed, depending on their situation.

To calculate how much of your student debt could be forgiven and what you’d have to pay on different IDR plans, try the Repayment Estimator at Federal Student Aid.

5. It Could Help You Avoid Default

If, like 20% of student borrowers, you’re behind on making your student loan payments and are in danger of defaulting, enrolling in an IDR plan can help. Defaulting comes with serious consequences, including significant damage to your credit score, which can make it difficult to buy a car or even rent an apartment. If you default, the federal government can automatically garnish your wages and capture all of your tax refunds without having to sue you first.

An IDR plan can help you avoid this by lowering your monthly payments to something more manageable. If you’re several months behind on your payments, servicers typically “catch you up” with a deferment or forbearance. That means you won’t need to make back payments; you’ll start with your new, lower monthly payment.

Even better, if you’re behind on payments because of unemployment, you may qualify for a $0 repayment, depending on spousal income if you have any. This allows your payments to count toward your 20 or 25-year forgiveness clock. If you opt for forbearance or deferment instead, with the exception of economic hardship deferment, your period of payment postponement won’t count toward your total number of payments required to qualify for forgiveness.


Disadvantages of IDR

Although IDR plans offer some unquestionable benefits for certain types of borrowers, they’re not for everyone. The average borrower with a total student loan debt balance of $33,000 or less isn’t likely to benefit from an IDR plan at all. Even for those borrowers who are struggling with their loans, there could be some drawbacks to enrolling in an IDR plan.

1. Your Income Might Be Too High to Qualify

The main advantage of IDR plans is the ability to tie payments to your income and family size rather than to the amount owed and the repayment term. But you may be struggling to make your monthly payments and still have an income too high to qualify.

Your monthly payment on an IDR plan is generally calculated as 10% of your “discretionary” income, although it can be as high as 20% on some plans. On all plans except for the income-contingent plan (ICR), your discretionary income is the difference between your adjusted gross income (AGI) — the amount of your income that is taxable every year — and 150% of the poverty level for a family of your size.

If that math results in a monthly payment higher than you would be required to pay on a standard 10-year repayment plan, you won’t qualify for the Pay As You Earn Plan (PAYE) or the Income-Based Repayment Plan (IBR).

If this is the case for you, there’s no point in applying for an IDR plan, as none of them will benefit you. Generally speaking, your debt balance needs to be higher than your annual income for an IDR plan to be useful. If it isn’t, you’re better off looking elsewhere for help managing your monthly payments, such as the graduated repayment plan, extended repayment plan, student loan refinancing, or consolidation.

2. You’ll Stay in Debt Far Longer

Although enrolling in an IDR plan may reduce your monthly payment, it does so at the expense of your loan term. All of the IDR plans extend the length of required payments from the standard 10 years to 20 or 25 years. So while the lower monthly payment may be highly attractive, keep in mind the potential long-term consequences of being in debt for decades longer. Will making those monthly payments keep you from being able to do other things with your money, like buy a house, start a family, or save for retirement?

A 2015 NerdWallet survey found that not saving for retirement in order to make student loan payments could result in nearly $700,000 in lost retirement savings. Even worse, with the average IDR plan extending the repayment term anywhere from 20 to 25 years, you could easily still be paying on your own student debt when it’s time for your children to enroll in college.

Rather than enrolling in IDR, consider joining the 21% of student loan borrowers who take on second jobs to repay their student loans, or explore any of the other options for paying off your student loans as quickly as possible.

3. You Could Pay Back More Overall

Although you may be paying far less per month on an IDR plan than you would on a standard 10-year repayment plan, you’ll be paying interest on your overall balance for far longer.Over the long term, you’re likely to pay back more overall than you would have on a 10-year repayment schedule. That’s true even if you qualify for forgiveness of any remaining balance unless your debt is extremely high and your income extremely low.

To figure out how much you’d have to repay in total on any of the federal repayment plans, visit the Repayment Estimator at Federal Student Aid.

4. Your Monthly Payments Could End Up Being Higher

Each IDR plan adjusts your monthly payments according to your income. That means as your income increases, so will your monthly payments. Although PAYE and IBR cap income adjustments so you’ll never pay more than what you would have on a 10-year repayment schedule, REPAYE and ICR do not have similar caps. So if your income increases significantly enough, you could end up paying more per month with REPAYE and ICR than you would have on a 10-year repayment schedule.

Also, if your income increases so much that you want to exit your IDR plan and return to repayment on a standard schedule, you may end up needing to make higher payments than you would have if you’d never used an IDR plan. That’s because any interest that accrued during your time in IDR will be capitalized. The total accumulated interest will be added to your principal, and new interest will start accruing on the new, higher balance.

5. Your Balance Could Grow

If your loan balance is high enough in relation to your income, your monthly payments could be less than the interest that accrues on your balance every month. That means your balance will grow even though you’re paying on it. It can be a frustrating and scary thing to witness.

In this case, you might need to bank on loan forgiveness. But if your income ever increases to the point where you no longer qualify for income-driven repayment — and, hence, loan forgiveness — all that interest could get capitalized with your principal balance, depending on the IDR program in which you were enrolled). You’ll have to pay back the entire new, higher balance, which could be as much as tens of thousands more. That means IDR could put you in a worse position than when you started, even if you’ve been making payments on your loans.

6. You Could End Up With a Hefty Tax Bill

Unless your loans are forgiven under the PSLF program, you may face a sizable tax bill at the end of your repayment period if you have a remaining balance that’s forgiven. The IRS treats the forgiven amount as if it were income and taxes it accordingly.

It can be a nasty surprise for many borrowers. While you may feel finally free, after 20 or more years, of the burden of your student debt, depending on how much is forgiven, you could end up owing thousands — or even tens of thousands — of dollars in income tax.

Worse yet, if you can’t afford to pay your tax bill and have to set up payment arrangements with the IRS, it could mean months or years of more monthly payments — this time to the IRS — just when you thought you were finally done.

Although laws regarding student loans could change in the decades it takes to pay back your loans, until they do, be prepared to pay income tax on your forgiven balance.

7. You May Never Benefit From Forgiveness

Unless you have a very high amount of debt relative to your income, you likely won’t even have a balance remaining to be forgiven at the end of making 240 to 300 payments. That means you won’t have to worry about paying income tax on any remaining balance that’s forgiven. But it also makes enrolling in IDR solely for the benefit of forgiveness rather pointless.

Even if you do end up with a balance remaining, you probably will have repaid what you borrowed several times over in those 20 to 25 years, and you’ll wind up having to pay even more in the form of taxes on the forgiven balance. So it’s highly questionable whether forgiveness itself is a benefit at all.

Again, to see what your monthly payments could be on any IDR plan, how much in total you’ll have repaid at the end of your term, whether you’ll have any balance remaining to be forgiven, and how much could be forgiven, visit the Repayment Estimator at Federal Student Aid.

8. Your Spouse’s Income May Affect Your Payment Amount

If you’re married filing jointly, your spouse’s student loans can be figured into the calculation of how big a monthly payment you should be able to afford. Unfortunately, so can your spouse’s income.

Say you’re currently unemployed and unable to make payments on your student loans. On your own, you can easily qualify for a $0 monthly payment. But if your spouse makes a large enough income that there’s a difference remaining after subtracting 150% of the federal poverty line for your family size from your household’s AGI, you’ll be stuck making payments even if the reduction in your household income makes it difficult to manage all your other bills and expenses. In this case, you may be better off opting for an economic hardship deferment.

If your spouse’s income will make a significant impact on your monthly payment, you may want to speak to your tax professional about whether it’s more beneficial for you to file separately.

9. Your Monthly Payments May Still Be Too High

Even after accounting for your income and family size relative to the federal poverty line, your monthly payments may still be too high for you to manage. The formula for discretionary income takes no other debt, with the potential exception of your spouse’s student loan debt, into account. You’ll never be asked what other bills you’re responsible for paying, including rent, mortgage payments, car loans, or credit card debt. Nor will any private student loans, if you have them, be factored into the calculation for what you “should” be able to afford. That means the amount you’re required to pay may still be out of your reach.

If this is where you find yourself, a graduated or extended repayment plan may work better for you.


Final Word

If you’re genuinely struggling to repay your student loans, an IDR plan might make sense for you.

But if you decide to opt for one, it’s important to understand the potential consequences.

If an IDR plan doesn’t seem right for you, but you’re unable to manage your current loan payments, contact your student loan servicer to discuss other options.

In the end, the right path for you depends on your personal situation. So be sure to research all your options — not only IDR — to see which repayment plan and schedule is most beneficial for your financial situation before making any changes to your student loan repayments.

Are you struggling to make your monthly student loan payments? Does IDR seem like it would be a workable solution for you?

Source: moneycrashers.com

How to Attract Remote Workers to Your Apartment Community

Thanks to the pandemic, the number of employees who work from home swelled over the past year. Even though offices are beginning to open, with workers returning to the workplace, surveys show that many plan to telework at least part-time in the future.

Apartment owners and managers need to take notice of this trend. After all, at a time when unemployment remains high, remote workers are employed – and capable of paying their rent. They also represent a large pool of prospective tenants, so targeting them can turn into a competitive advantage.

Here are three things you can do to attract the work-from-home cohort:

  • Provide the tools teleworkers need. High-speed internet service and reliable cell phone reception are a must. The 2020 NMHC/Kingsley Apartment Resident Preferences Report found that 92% of tenants want high-speed internet access, while 91% said the community amenity they most desire is reliable cell phone reception. Tenants are even willing to pay higher rent for high-speed internet — $35.05 per month more, the survey found.
  • Tweak your marketing plan. Help the prospect envision working in your space. Stage model units (live or virtually) to include work spaces in bedrooms, or create zoom-worthy spaces on balconies or rooftops.
  • Don’t focus only on attracting new tenants; meet the needs of existing ones. Happy tenants are more likely to renew their leases, saving you the cost of turnover. They also can be a source of referrals. Convert business centers from open spaces to individual offices, and add programming designed to meet the needs of remote workers, such as a poolside yoga class to relieve stress or an online time-management workshop. People are craving human interaction these days, and programming can enhance a sense of community.

Source: century21.com

What is the Student Loan Grace Period? – Lexington Law

Student Loan Grace Period Header Image

The student loan grace period is the time given to you before you’re required to start paying back your student loans. The amount of time given varies depending on the loan you take out. The intent behind the grace period is to give graduates time to find a job and get financially prepared before the first payment is due. Unfortunately, not all student loans have grace periods. 

Our guide will answer common questions and explain crucial details you need to know about the student loan grace period.

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Does Interest Accrue During the Grace Period?

For most student loans, interest will accrue even during your grace period. Interest does not accrue during the grace period for Federal Perkins loans or subsidized Stafford loans made before July 1, 2012, or after July 1, 2014. 

If you have unsubsidized loans or a subsidized Stafford loan made between July 1, 2012, and July 1, 2014, interest will accrue during deferment and grace periods. Unpaid interest is generally capitalized (added to the principal balance) following the grace period.

How Long is a Student Loan Grace Period?

Different loans have different grace periods. For private loans, you should review the specific terms of the loan to find out if you have a grace period and how long it is. 

  • Federal Stafford loans receive a six-month grace period.
  • Federal Perkins loans receive a nine-month grace period and are allowed another six-month grace period after an eligible deferment.
  • PLUS loans have no grace period, but you may be eligible for deferment.

When Does the Grace Period Start?

For most federal loans, your grace period begins after you leave college. This includes: 

  • Graduation 
  • If you withdraw from school
  • If you drop below half-time enrollment

Definitions for half-time enrollment vary by school, so check with your financial aid office if you adjust your class schedule.

Can the Student Loan Grace Period Change?

Certain circumstances may change your grace period, such as:

  • Active military duty: If you’re called to active duty for longer than 30 days during your grace period, you’ll receive a six-month grace period when you return from active duty.
  • Returning to school: If you re-enroll in school at least half-time during your grace period, you’ll have a full six months to begin repayment once you graduate or drop below half-time enrollment. 
  • Loan consolidation: Once you consolidate your loans, you lose any remaining grace period. You’ll receive your first bills approximately two months after the new direct consolidation loan is disbursed. 

What Happens When the Grace Period Ends?

Repayment starts when your grace period ends. Your loan servicer should provide a loan repayment schedule stating when your first payment is due. The schedule will detail the amount required in your monthly payments. If you need more time to find a job after your grace period ends, you can pursue an unemployment deferment or an income-based repayment plan.

How to Take Advantage of the Grace Period?

One of the best ways to prepare during your grace period is by establishing yourself financially.

  • Find employment that will help you make your monthly student loan payments.
  • If interest does accrue during your grace period, consider paying the interest before repayment begins. When interest is capitalized at the end of the grace period, interest is charged on the higher principal balance. 
  • Determine your repayment plan as early as possible. Understanding the details of repayment can save you time and money.
  • If you already have a job, start setting aside money for an emergency fund. This will be invaluable when unexpected events happen, and can prevent you from defaulting on your student loan.

How Student Loan Payments Affect Your Credit Score

As with any debt, student loans can affect your credit score positively or negatively. A student loan payment can help you establish credit history, improve the diversity of your accounts and show that you can responsibly manage a loan. However, late payments or defaulting on your loan can hurt your credit.

Keep an eye on your credit report to make sure your payments are correctly reported. Just one misreported late payment can hurt your credit score significantly. If you’re not sure where to start, you can contact Lexington Law firm for a free credit report consultation to get a better idea of where you stand.

Source: lexingtonlaw.com