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 loan payments. (What constitutes half-time enrollment? It varies by school, so check with your counselor to find out.)
Whether you’re entitled to a grace period is a question that doesn’t come with a uniform answer, because it varies by loan type. While some government loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans do come with a six-month grace period, others, like federal PLUS loans, have no automatic grace period (although you can apply for deferment—more on that later.)
If you consolidate your government loans, you’ll lose your grace period (once your Direct Consolidation Loan is disbursed, repayment begins approximately two months later). And if you refinance, the terms are up to the lender.
If you are an active member of the military and are deployed for more than 30 days during your grace period, the grace period on federal student loans could be extended up to three years and will start over upon your return. This is, of course, if your federal loan offers a grace period.
The intent of a grace period is to give new graduates a chance to get a job, get settled, select a repayment plan, and start saving a bit before their loan repayment kicks in. And no one will argue that six months without student-loan payments can make a big difference in your bank balance. But it doesn’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?
In addition to growing a bit of a savings account, the grace period also allows new grads some time to create a workable budget and/or 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.
Using a Student Loan Grace Period
If you are in a financially tight spot after you graduate or during your break from school, a student loan grace period can offer a much-needed breathing room.
For example, if you’re financially strapped and have high-interest credit card debt, it could be a chance to focus on those payments instead. (It’s likely that, unless you are paying off a promotional, no-interest credit card, those interest rates will be higher than your student loan’s interest rates.)
You may also want to consider taking advantage of a grace period if you need to either drop some classes (or drop out altogether) in order to care for a loved one, raise a newborn, or just take a brain break.
If you return to classes at least half-time before your federal loan grace period ends, the six months starts over . (Note, however, that if you consolidate your federal loans during your grace period, you lose any remaining time on your grace period.)
Ultimately, you should 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.
What’s the Difference Between Grace Periods, Deferment and Forbearance?
If your loan doesn’t qualify for a grace period, you may still have options for delaying your federal student-loan repayment, including deferment and forbearance. What’s the difference? Both are similar to the grace period in that it’s a length of time that you’re not responsible for a student loan payment. The difference, however, is in the interest.
If a loan is in forbearance, the loan payments will be temporarily paused, but interest will continue to accrue during the forbearance period. This can lead to substantial increases in what you’ll pay for your federal loans over time, so you’ll likely want to consider forbearance very carefully, and look into other options that might be available to you, like income-driven repayment plans .
In deferment, some types of loans may continue to accrue interest, while certain types of loans will have the interest subsidized by the government. (View the full list of federal loan types here.)
Keep in mind that while grace periods are automatic, you’ll need to request a deferment or forbearance and meet certain eligibility requirements. In some cases—during a medical residency or National Guard activation, for example—a lender is required to grant forbearance.
Tips for Navigating a Non-Payment Period
Depending on the type of federal student loan you have, interest will continue to accrue during periods of non-payment like a grace period. In that case, once payments restart, any outstanding interest will be capitalized—added to the principal balance—effectively leaving you to pay interest on your interest.
That said, 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 balance from growing during that time. 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 are not as likely to come with a grace period—but there are some that do. Here at SoFi, for example, qualified private student loan borrowers can opt to take advantage of a six-month window before payments are due.
There are also up to four different repayment options, so borrowers can choose the one that makes the most financial sense for them. (Make sure you check with any 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, might effectively eliminate any remaining grace period. Alternatively, you could consider refinancing your student loans with SoFi—where existing grace periods are honored, even on a refinance.
It’s important to point out that refinancing federal student loans with a private lender, including SoFi, renders them ineligible for certain protections and benefits, like income-driven repayment plans, loan forgiveness, and deferment.
If you want to find out whether refinancing your student loans could help you lower your monthly payments or reduce interest, you can take a look at SoFi’s Student Loan Refinance Calculator, which lets you plug and play with various scenarios to see how you might benefit. If you’re ready to take that next step, checking your rate won’t affect your credit.1
1Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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