With graduation comes a fair share of celebration and changes. From grad parties to finding your first job to possibly a major move, life moves pretty fast during that first year out of school. While you’re busy setting up a new life, you may not even have time to think about those student loans you might’ve taken out for school.
When it comes to student loans, however, it’s not as easy as out of sight, out of mind. You might be busy setting up the next phase of your life, but don’t forget that your loan repayment will come calling, and likely sooner than you think.
But one possible avenue for relief is that many student loans come with a grace period. A student loan grace period can be a helpful tool—especially if you don’t have a steady source of income after college—but it’s important to pay attention to the specifics of your student loans so that you understand if you have a grace period, how long your grace period is, and what it entails.
What is a Student Loan Grace Period?
You might not have to pay your federal student loans back immediately after you graduate college. Depending on the loan type, former students may be given a six-month grace period before loan repayment starts. This “grace period” gives new graduates some breathing room before they start making student loan payments.
Without a grace period, you’d need to pay student loans back immediately. This could be challenging if you’re not yet on your feet with a steady income, post-college.
Remember, it’s not just graduation that kicks off the grace period. Grace periods for federal student loans can apply to anyone who has graduated, left school entirely, or dropped below half-time attendance.
If you have one, a grace period won’t magically end one day without notice and leave you scrambling to find out where to send your monthly loan payment. Your student loan servicer is obligated to provide you with the following information:
• Your loan repayment schedule.
• The date of your first payment.
• The number of payments.
• The frequency of payments.
• The amount of each payment.
A grace period can provide an opportunity for borrowers to plan for the future. How you use your grace period can make a difference in your ability to pay down your student loans later on. Establishing yourself in the workforce and earning a regular income can be helpful, but try not to worry so much if that doesn’t happen immediately after college.
Finding a job after college might require a bit of hustle. Some people may find themselves filling out countless job applications, networking, participating in a post-graduation internship, or relying on side hustles to start earning money.
As you prep your resume and polish off your interview skills, it can be tempting to push the thought of student loans to the back burner. But your grace period can provide a valuable reprieve that could give you a bit of breathing room to sort through financial obligations and determine a repayment plan.
Here are a few more ins and outs of student loan grace periods so you can enter the “real world” with your best foot forward.
You May Have a Longer Student Grace Period Than You Think
Not all grace periods fall within the six-month range. Your grace period could be longer than six months or you might not have a grace period at all. It all depends on your lender and the types of loans you have.
Direct Unsubsidized and Direct Subsidized student loans have a six-month grace period. Interest accrues from the time the loan is disbursed and will continue to accrue during the grace period on unsubsidized loans. Borrowers with subsidized loans generally will not be responsible for accrued interest during the grace period.
The grace period on Federal Perkins loans can vary. The Perkins loan program expired in 2017. Borrowers with existing Perkins loans can check with their loan servicer or the school that made the loan to get more information about the repayment plans available to them.
Federal PLUS loans for graduate or professional students don’t have a grace period, but graduate or professional student borrowers receive an automatic six-month deferment when they drop below half-time enrollment, leave school, or graduate. During this deferment, borrowers are not required to make payments but interest will continue to accrue.
Parents who borrowed PLUS Loans to pay for their child’s education are able to request a six-month deferment when their child drops below half-time enrollment, leaves school, or graduates.
Some federal student loan grace periods can be extended even longer, for active duty military for instance.
What about private student loans? Typically, private lenders don’t offer grace periods, but options will vary from lender to lender. Some lenders, however, may offer a six-month grace period.
For example, SoFi will honor the first six months of any existing grace period of the loans you refinance. With other lenders, payments may begin as soon as the loan is disbursed. The terms of the loan should specify what grace period, if any, is available.
You Might Not Owe Interest During Your Student Loan Grace Period
A grace period can be a welcome break from making payments, and on some loans, hitting pause won’t lead to additional interest. But depending on the type of loan you have, this isn’t always the case. Certain loans will continue to accrue interest during the grace period.
Direct Subsidized Loans (sometimes known as Stafford Loans), Grad PLUS, and Perkins loans don’t accrue interest during the grace period. That means that you won’t have six months’ worth of interest added to the life of your loan that accrued during your grace period.
But if you have Direct Unsubsidized Loans, your interest will begin to accrue when the loan is disbursed and will continue to accrue while you are in school and during your grace period.
By the time you’re ready to make your first payment, your balance will be slightly higher than it was when you took out your loan (unless you’ve made interest-only payments).
At the end of the grace period, any unpaid interest is capitalized on Direct Subsidized loans (same goes for Grad PLUS loans and their deferment period). This means that the accrued interest is added to the total outstanding balance of these loans.
Interest payments calculated after this will use the new, capitalized balance. This means you’d be paying interest on top of interest, unless you make interest payments of course! For private loans, check with the specific lender regarding their policy.
Extending Your Student Loan Grace Period is Possible (in certain situations)
There are certain situations in which your grace period on a federal student loan may be extended. These depend on the loan type, but generally include:
• If you’re serving in the military and are deployed on active duty for more than 30 days before your grace period ends. In that case, you’ll receive a reinstated six month grace period when you return from active duty.
• If you re-enroll in school even part-time before your student loan grace period ends, you won’t be required to pay your student loan back while in school. When you finish or drop below half-time attendance, you’ll receive a six month grace period.
Consolidating your federal student loans with a Direct Consolidation loan during the grace period will eliminate the time remaining on the grace period. You’d then be responsible for repaying the Direct Consolidation when it’s disbursed. Generally, the first payment is due about two months after the loan is disbursed.
There are options available to federal student loan borrowers who might want to pause repayments after the grace period ends. During certain periods of financial hardship, borrowers might consider applying for deferment or forbearance. These options allow borrowers to temporarily pause payments on their loans.
Depending on the type of loan you have, interest may or may not accrue during deferment. You can take a look at this article for an in-depth explainer of the differences between deferment and forbearance.
Choosing How to Handle Your Student Loan Grace Period
If you decide that the pros of the student loan grace period outweigh the cons, you could use that payment-free time to start setting aside funds for later. During your grace period you can:
• Use a student loan calculator to estimate your monthly payments.
• Work with your lender/servicer to see what your actual payments will be.
• Make it a goal to try and put away at least a partial amount each month.
If you get used to living on a budget that doesn’t include your student loan payment, you may be setting yourself up for future stress. Instead, you could consider:
• Waiving the grace period and starting student loan payments immediately. If you have enough wiggle room in your budget, you can start paying your loans down immediately. Since your loan wouldn’t be accruing unpaid interest during the grace period, it could lead to savings in the long term.
• Setting aside a part of your monthly paycheck to start paying down the interest. If your budget doesn’t allow for monthly payments yet, you could try saving what you can to pay off some of the interest on your student loans during the grace period. Even a small contribution can make a difference.
• Making payments that even just cover your loan’s interest during that time could help you avoid having a higher balance than when you graduated (due to pesky capitalized interest, discussed above).
Finding your federal student loans can be a challenge in and of itself. If you want to track down your loan to confirm the grace period or make interest-only payments during it, you can take a look at the National Student Loan Data System (NSLDS).
This site is operated by the U.S. Department of Education and can provide a comprehensive overview of a borrower’s federal student loans, including the loan servicer assigned to each loan.
Grace periods are all about giving you some financial space. If you have the room in your budget to make interest-only payments during the grace period, it could help keep you on track to pay off your loans even sooner. It’s a small sacrifice now that could potentially make a difference later.
But if your budget doesn’t allow for any payments during your grace period, don’t sweat it. Your grace period is there for a reason, to give you some breathing room while you sort things out financially.
Some Ways Student Loan Refinancing Can Help
Unlike using a Direct Consolidation Loan, refinancing your student loans doesn’t automatically mean that you’ll have a shorter grace period.
Refinancing is when a private lender pays off your loans and gives you a brand new loan. Refinancing with a private lender could potentially result in a lower interest rate or more favorable terms.
If you are managing a number of student loans, refinancing may help to simplify your life by giving you one loan to pay, instead of multiple loans to remember.
However, not all private lenders will honor your federal student loan grace period—if you choose to refinance during your grace period, you may have to begin repayments as soon as the refinance loan is disbursed.
Some private lenders will still honor your six-month grace period, and SoFi is one of them. If you want to get ahead of those student loan payments, and are searching for a lower rate and more flexible terms, refinancing might be worth considering.
A grace period can be a helpful time to pause and consider your finances. As a recent graduate, you probably have a lot on your plate as you find your footing in your career and figure out how to become an adult in the working world. Part of adulting might include creating a student loan repayment plan.
If you’re considering refinancing, take a look at SoFi. You can find out if you prequalify in a few minutes.
An important thing to note: Refinancing your federal student loans with a private lender will eliminate them from federal benefits and protections—like deferment, forbearance, and income-driven repayment plans—so refinancing won’t be right for everyone.
Don’t let your grace period’s end catch you off guard. If you plan ahead, and plan for future payments, you could end up on more solid financial footing.
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