Most student loans have a grace period after graduating, leaving school, or dropping below half-time status. This is a period of time when you will not have to make payments on your loan. Most federal loans have a grace period of six months.
After the grace period is up, you will start making payments on your loan. Lenders set student loan grace periods. Some private loans do not provide any grace period and require you to make payments as soon as the loan is disbursed.
You will need to have a repayment plan in place when you set up your loan. Your grace period can help you get settled after leaving school and give you time to work out your budget and plan for making your monthly payments going forward.
Current Student Loan Grace Period
Grace periods for student loans differ depending on your loan type, repayment plan, and lender. Many student loans do not require you to make payments while you are in school. These loans often allow you a period of time after you graduate to find a job and settle into life before beginning payments.
If you leave school before graduation or drop below half-time enrollment status, your grace period will also begin.
For student loans, the current grace periods are as follows:
- Federal Direct Subsidized and Unsubsidized Loans, and Stafford Loans: Six months
- Federal Perkins Loans: Set by your specific school
- Federal PLUS loans: No grace period
- Private loans: Depends on the lender and type of loan
With subsidized loans, interest does not accrue while you are in school or during your grace period. If you have an unsubsidized student loan, interest will accrue during all periods of your loan term, including your grace period.
Interest that is accrued during the grace period will capitalize, which means that it will be added on to your loan’s principal before repayment starts. This will increase the overall balance of your loan.
Exceptions to the Grace Period
There are a few exceptions to the standard grace period.
- Returning to school: If you re-enroll in school at least half-time before your grace period ends, your six-month grace period will be reinstated. The grace period will begin after you drop below half-time enrollment status again, leave school completely, or graduate.
- Active-duty military service: If you are called into active military duty for a period of at least 30 days before your grace period ends, your grace period will be extended for another six months after your term of service is up.
If you choose to consolidate your federal student loans through a consolidation loan, you will forfeit your grace period. Loan consolidation pays off your old federal loans and issues you a new loan altogether, with new loan terms. Generally, these loans will not have a grace period, and you will need to start payments on them within two months of disbursement.
Student Loan Repayment
Your loan provider or servicer will help you set up your student loan repayment options.
Your repayment period will start after your grace period. You will have a set amount of time to pay off your loans based on your loan term. For example, if you have a ten-year loan term, you will have 120 monthly payments to pay your loan back after your six-month grace period is over.
Here are some examples of repayment plans:
- Standard Repayment Plans: A fixed monthly payment amount that is usually set over a ten-year loan term.
- Graduated Repayment Plans: Payments will start lower and then typically increase every two years during your loan term. This will pay off the loan in a set amount of time, usually ten years.
- Extended Repayment Plans: Payments can be either fixed or graduated, and generally have a longer loan term of 25 years.
- Income-Based or Income-Driven Repayment Plans: Monthly payments are based on your discretionary income and recalculated each year.
Typically, the standard repayment plan will cost you the least overall. You will pay off your loan faster and start paying down your principal quicker than with the other plans.
Deferring Your Student Loans
You will have to start making payments on your student loan after your grace period ends, even if you had to leave school and didn’t finish, needed to drop down to less than half-time status, or haven’t yet gotten the job you expected after graduation. There are some exceptions and ways that you can stall your repayment period, such as deferment.
If money is still tight during your grace period, and it doesn’t look like you are going to be able to successfully make your monthly payments once repayment starts, you can consider deferring your loan.
To obtain a deferment, you will usually need to apply through your loan servicer. The following criteria can make you eligible for a federal student loan deferment:
- Half-time or full-time enrollment in college, career school, or an approved graduate fellowship program
- Unemployment or inability to find full-time employment
- Economic hardship
- Serving in the Peace Corps
- Active-duty military service related to a national emergency, war, or military operation
- Enrollment in a rehabilitation program for the disabled
- Receiving cancer treatment
Preparing for the End of Your Grace Period
Student loan debt has reached record numbers. Nearly 40% of borrowers are estimated to default on their student loans by 2023.
One of the best ways to protect your credit score and avoid defaulting on your loan is to be prepared. It is important to start thinking about how you are going to make your monthly loan payments before your repayment period starts, while still in your grace period.
Planning for the end of your grace period can set you up for success once repayment begins. Here are some tips for staying on top of your student loan debt and prepping for repayment:
- Make a monthly budget that includes your student loan payments.
- Look into different repayment plans to find out what will work best for you. Understand that the more you can pay and the faster you can pay, the less you will shell out in total.
- Start paying early, like during your grace period, if you can, to avoid interest capitalization.
- Make paying off your student loans a priority.
- Set up automatic payments to ensure the bill is paid on time each month.
- Stay in contact with your loan servicer, and work together to ensure that you can make payments on time and that the plan will work for you.
Make a plan during your grace period for how you are going to afford your student loan payments. Your needs and circumstances can change, too. It can be helpful to save money when possible and make changes to your repayment plan as needed.