What is a Student Loan Grace Period?
After you leave college, there is a grace period. This article reviews what that is and how it may impact your repayment schedule.
Understanding what is a grace period when referring to student loans is one of the most important terms to figure out. This period is after you graduate from college where you don’t need to make any payments on your student loans. The idea is that you can have the space to find employment and get settled into post-college life without worrying about loan payments.
The grace period is certainly a nice perk, but it can have its downsides, such as a growing loan balance. Let’s look in more detail about a student loan grace period and whether you should start paying off your loans before it’s over.
How Long is a Student Loan Grace Period?
Most student loan grace periods are for six months after you leave school, are below half-time enrollment, or when you graduate. Some loans, like the PLUS loan or some private student loans, don’t have a grace period. For others, how long your grace period lasts will depend on the type of student loans you took out.
In some cases, some may be able to have their grace period extended. For instance, those serving on active duty in the Armed Forces may be able to extend the grace period for up to three years.
Plus, your grace period can only be used once per student loan. That means if you decide to go back to school after your grace period ends, you may not be eligible for another grace period after graduation. However, check with our lender or loan officer to determine if this is the case.
Grace Period For Federal Student Loans
Most federal student loans have a grace period, but it’ll differ depending on the type of loan you borrow. Some, like the PLUS loans, borrowers may be able to defer these loans. Meaning, you may not owe on payments right away.
Here’s a quick overview of the grace period for federal student loans:
- Unsubsidized federal Stafford loans: six months
- Direct subsidized loans: six months
- Direct unsubsidized loans: six months
- Parent PLUS loans: none
- Grad PLUS loans: none
Grace Period for Private Student Loans
When it comes to private student loans, grace periods differ. While there are lenders that offer them, there are also ones that don’t. As in, you’ll need to start making payment after your loan is disbursed. That’s why it’s important to check the fine print to see what your borrower responsibilities are before signing on the dotted line. For instance, the grace period for Sallie Mae loans are typically six months, but others won’t for graduate loans.
What Happens to The Interest During My Grace Period?
Just because you don’t have to make any payments during the grace period, doesn’t mean that interest isn’t occurring. In fact, interest will continue to accrue during the grace period — your loan balance is still growing during this time.
There are some exceptions such as with the subsidized federal loans. If you’ve taken out a Direct Subsidized Loan, the U.S. Department of Education will cover the interest accruing on your loan while you're still in school and during your six-month grace period. Depending on how much you borrow, you’ll be saving a lot of money in interest.
For others, it’s a good idea to see how much interest you’ll end up accrue during the time you’re in school and during your grace period. That way, you’ll be prepared financially when it comes time to make your loan payments.
Should I Make Payments During My Grace Period?
Whether or not you should make loan payments during your grace period will depend on several factors. Taking advantage of your grace period is a good idea if you’re on a limited income stream and still looking for a job after graduation.
Those few months during your grace period will give you breathing room to move to a new place, get settled in your new life, and secure a job. It saves you from having to worry about finding money for payments.
However, if you have a steady income stream or find a job right away, you may want to consider making payments before your grace period is over. That way, you can lower the interest you’ll have to pay over the lifetime of your loan. Ideally, doing so can help you pay off your loans early.
How to Make Payments During Your Grace Period
If you decide to start making payments before your grace period ends, here are some options:
- Make interest-only payments: This is a good option if you can’t afford to pay a lot towards your loans, but want to get a head start anyway. You can make payments that’ll cover the interest that’s accruing. Check your account statement to see how much the amount will be.
- Make full monthly payments: If you can afford to do so, making full payments will decrease the interest you pay overall. For federal loans, you can find out this amount when you receive loan exit counseling. For private student loans, contact your lender.
- Make a flat payment: Think of this method as a compromise between a full payment and interest-only payments. Instead of determining your monthly payment on external factors, you make payments based on an amount you can reasonably pay each month. Even small amounts like $25 a month will lower the amount of interest you owe overall.
Consolidating Your Student Loans During a Grace Period
Did you know that you may be able to consolidate or refinance your loans during the grace period? For federal student loans, you may be able to do so, but only for certain types of loans. Keep in mind that if you do consolidate or refinance your loans, you may lose your remaining grace period once your new loan has been finalized.
The good news is that you can try to time your refinance closer to the end of your grace period if you need some breathing room. Doing so may also help you to lower your interest rate, saving you on monthly student loan payments. You can check what you may qualify for without going through a hard credit check and with not obligation to sign up.
Sarah Li Cain
Sarah Li Cain is a finance writer and a candidate for the Accredited Financial Counselor designation whose work has appeared in places like Bankrate, Business Insider, Financial Planning Association, Investopedia, Kiplinger, and Redbook. She’s the host of Beyond The Dollar, where she and her guests have deep and honest conversations about money affects their well-being.
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