You made it through college. You stayed awake during three-hour lectures, pulled all-nighters leading up to finals week (and probably a few unsanctioned all-nighters with your friends), and ate more heat-lamp dorm pizza than you ever thought possible.
But you did it. It was fun, too, but it wasn’t easy—and neither is landing a job after you graduate. Landing a great gig requires persistence and patience, especially in this age of resume data scraping and HR bots.
As you begin to prepare for life after graduation, one of the most important first steps to take is figuring out whether you’re required to make monthly student loan payments right away or if you have what’s called a “grace period.” The same thought process applies to those taking a break from full-time education, whether it’s a semester away to take care of a personal health issue or you’re leaving school indefinitely to pursue other opportunities; you may have a grace period or you may have to start paying back your loans.
Explaining Student Loan Grace Periods
A student loan grace period is typically a six-month allotment of time after a student graduates, leaves school, or drops below half-time enrollment, and before they must begin making student loans payments. (What constitutes half-time enrollment? It varies by school, so check with your counselor to find out.)
Not all federal student loans offer grace periods. Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans all have a six-month grace period. PLUS loans have no automatic grace period, although you can apply for deferment. If you consolidate your loans using a Direct Consolidation Loan, you may lose certain benefits, like interest rate discounts (and you may wind up paying more in interest and payments)
If you are an active member of the military and are deployed (for more than 30 days) during your grace period, the grace period will start over upon your return. This is, of course, if your loan offers a grace period.
Grace periods don’t come without a catch. For most federal student loan types, interest will be charged during the grace period even if you aren’t making payments on the loan. These interest payments are then added to your total loan balance (in student loan terms, that interest is called “capitalized interest”). You will then have to pay that capitalized interest on top of your loan’s annual interest.
What are Student Loan Grace Periods Used for?
Student loan grace periods exist to allow students some time to financially stabilize before making monthly student loan payments. The grace period allows new grads some time to find a job and/or to decide on the best student loan repayment plan given their personal financial situation. A grace period can also allow students the opportunity to take a break from school for a period of time (usually a max of six months) without student loan payments kicking in.
Should I Use a Student Loan Grace Period?
If you are in a financially tight spot after you graduate or during your break from school, it may make sense to take advantage of a student loan grace period rather than struggling to make payments. You probably don’t want to risk racking up high-interest credit card debt because you’re trying to make payments during your grace period. After all, your student loan interest rates should be lower than the rates you’d receive on almost any consumer credit card.
Ultimately, you need to do what’s best for your financial situation. The grace period exists for a reason—it can be hard to go from borrowing relatively large sums of money to paying back large sums of money right after you’re handed your diploma. However, if you are in a financial position to make interest-only payments during a grace period, doing so can help keep your loan’s principal from growing during that grace period. In other words, just because you don’t have to make payments toward your student loans during a grace period doesn’t mean you can’t.
Do Private Student Loans Have Grace Periods?
Private student loans generally don’t offer grace periods, but there are some that do. Make sure you check with your loan provider to understand when you need to start paying back your private loans.
It’s also important to note that most loan consolidation programs, whether private or federal, effectively eliminate any remaining grace period. Alternatively, you could consider refinancing your student loans with SoFi.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinanced loans are private loans and do not have the same repayment options that the
federal loan program offers such as Income Based Repayment, Income Contingent Repayment, or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.