As you prepare for life after graduation, one important step is figuring out whether you’re required to make monthly student loan payments right away or you have what’s called a “grace period.” The same question applies to students taking a break from full-time education.
Don’t forget: The pause on federal student loan payments and interest, announced in March 2020, is scheduled to expire in 2023, as late as 60 days after June 30, 2023.
Below, we’ll explain what a grace period is, when it starts, and how you might extend yours. You’ll also find a simple financial to-do list to tackle before you start making student loan payments.
What Is a Grace Period for Student Loans?
A student loan grace period is a window of time after a student graduates and before they must begin making loan payments. 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. Most federal student loans have a grace period, as well as some private student loans.
Grace periods also apply when a student leaves school or drops below half-time enrollment. Active members of the military who are deployed for more than 30 days during their grace period may receive the full grace period upon their return.
How Long Is the Grace Period for Student Loans?
The grace period for federal student loans is typically six months. Some Perkins loans can have a nine-month grace period. When private lenders offer a grace period on student loans, it’s usually six months, too.
Keep in mind that, as noted above, not all student loans have grace periods.
Does My Student Loan Have a Grace Period?
Whether you have a grace period depends on what kind of loans you have. Student loans fall into two main buckets: federal and private student loans.
Federal Student Loans
Most federal student loans have grace periods.
• Direct Subsidized Loans and Direct Unsubsidized Loans have a six-month grace period.
• Grad PLUS loans technically don’t have a grace period. But graduate or professional students get an automatic six-month deferment after they graduate, leave school, or drop below half-time enrollment.
• Parent Plus loans also don’t have a grace period. However, parents can request a six-month deferment after their child graduates, leaves school, or drops below half-time.
Keep in mind: Borrowers who consolidate their federal loans lose their grace period. Once your Direct Consolidation Loan is disbursed, repayment begins approximately two months later. And if you refinance, the terms are up to your new private lender.
Private Student Loans
The terms of private student loans vary by lender. Some private loans require that you make payments while you’re still in school. When private lenders do offer a grace period, it’s usually six months for undergraduates and nine months for graduate and professional students.
Here at SoFi, qualified private student loan borrowers can take advantage of a six-month grace period before payments are due. SoFi also honors existing grace periods on refinanced student loans.
If you’re not sure whether your private student loan has a grace period, check your loan documents or call your student loan servicer.
Recommended: Student Loan Forgiveness for Current Students
Does Interest Accrue During the Grace Period?
During the student loan payment pause, from March 2020 to a to-be-announced date in 2023, interest is not accruing on federal student loans. However, that’s not the way it usually works.
For most federal student loans, interest is charged during the grace period — even though you aren’t making payments on the loan. This interest is then added to your total loan balance (a process called “capitalization”), effectively leaving you to pay interest on your interest.
However, there’s good news on the capitalization front: Beginning in July 2023, new federal regulations will eliminate the capitalization of interest when a borrower first enters repayment. This can save borrowers a considerable amount of money on interest.
How to Make the Most of Your 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 much-needed breathing room. Here’s how you can put your grace period to good use:
Get Your Finances in Order
Take this time to create a new post-grad budget. Which approach you use is up to you: the 70-20-10 Rule, the Kakeibo method, zero-based budgeting. The important thing is to determine your monthly income and expenses, setting aside enough to pay down debts and save a little.
Set Up Autopay
Missed loan payments can incur penalties and hurt your credit score. Setting up autopay means one less thing you have to remember. Some student loan lenders will even discount your interest rate for setting up automatic payments (like SoFi!).
Consider Making Payments Ahead of Time
Just because you don’t have to make payments toward student loans during a grace period doesn’t mean you can’t. If you are in a financial position to make payments — even interest-only payments — during a grace period, you should. It can help keep your loan’s principal balance from growing. (Learn more in our take on making minimum student loans payments.)
Look into Alternative Repayment Plans
Once your grace period is over, you’ll be automatically enrolled in the Standard Repayment plan. However, if you’re concerned about making your payments, several income-driven repayment plans are available. These plans reduce your payment to a small percentage of your disposable income — sometimes as low as $0. And beginning in 2023, these plans will become an even better deal.
Consider Consolidating or Refinancing Your Student Loans
These two terms are often used interchangeably, but there are important differences between them. Both consolidation and refinancing combine and replace existing student loans with a single new loan.
A Direct Consolidation Loan allows you to combine several federal student loans into one new federal loan. The resulting interest rate is the weighted average of prior loan rates, rounded up to the nearest ⅛ of a percent. However, as noted above, borrowers who consolidate their federal loans lose their grace period.
Student loan refinancing is when you consolidate your student loans with a private lender and receive new rates and terms. Your interest rate — which is hopefully lower — is determined by your credit history.
Can You Extend Your Student Loan Grace Period?
If your loan doesn’t qualify for a grace period or you want to extend your grace period, you have options. You may still delay your federal student-loan repayment through deferment and forbearance.
What’s the difference? Both are similar to a grace period in that you won’t be responsible for student loan payments for a length of time. The difference is in the interest.
When a loan is in forbearance, loan payments are temporarily paused, but interest will accrue during the forbearance period. This can lead to substantial increases in what you’ll pay for your federal loans over time. You’ll want to consider forbearance very carefully, and look into other options that might be available to you, like income-driven repayment plans.
While grace periods are automatic, you’ll need to request a student loan 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.
The Takeaway
Federal student loan grace periods are typically six months from your date of graduation, during which you don’t have to make payments. Most federal student loans have grace periods (though sometimes they’re dubbed “deferments” instead). Private student loan terms vary by lender. However, some lenders, like SoFi, match federal grace periods for undergrad loans. During your grace period, you may want to make payments anyway, even interest-only payments, to prevent your balance from growing. The grace period is a good time to create a new budget, choose a repayment plan, and set up autopay. Although student loan payments and interest have been paused since March 2020, they are set to start up again in 2023.
If you have trouble making your payments, you have options, from income-driven repayment to consolidation to refinancing. 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 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 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.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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