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How student loan grace periods work
Everything you need to know about that period before your repayments begin.
What is a grace period on a student loan?
A grace period on a student loan is the period of time right after you leave or graduate from school before your first student loan repayment is due. All federal loans come with a grace period, as do many private student loans.
The purpose of a grace period on a student loan is to give recent graduates a chance to find a job, move to a new city and otherwise settle into their career before they pay off their loan. While it’s flexible, some borrowers don’t understand that with many student loans, interest continues to add up during the grace period and could make them more expensive in the long run.
When does a student loan grace period begin?
It depends on your lender, but often your student loan grace period begins after you no longer qualify as an eligible student. With most federal loans and many private student loans, your grace period begins as soon as you drop below half-time status in school. So you might want to rethink taking that semester off — you could end up having to pay off your student loans while you’re still in school.
With federal loans, the one exception is PLUS Loans. Parent PLUS and Direct PLUS Loans don’t have a grace period, so you have to start making repayments as soon as your school gets the funds. Same goes for some private student loans, especially those for graduate students.
The length of your student loan grace period depends on the type of student loan you have.
Length of grace period by student loan type
|Student loan||Length of grace period||Does interest add up?|
|Direct Subsidized Loans||6 months||No*|
|Direct Unsubsidized Loans||6 months||Yes|
|Subsidized Stafford Loans||6 months||No|
|Unsubsidized Stafford Loans||6 months||Yes|
|PLUS Loans||No grace period||Doesn’t apply|
|Federal Perkins Loans||9 months||No|
|Private student loans||0–9 months, depending on the lender||Yes|
Why doesn’t my student loan have a grace period?
Federal PLUS Loans and some private student loans don’t have a grace period. It might sound scary, but it shouldn’t cause alarm. If you were able to qualify for a student loan without a grace period in the first place, it means that you and your cosigner have demonstrated that you have the means to start making repayments right away.
Some private student loans come with in-school deferment that ends several months after you graduate. Many offer the option to make minimum monthly payments of around $25, interest-only payments or deferring your loan until you’re out of school. It might not refer to this time as a grace period, but functionally, it’s the same thing.
What should I do during my grace period?
It’s tempting to sit back and not worry about your student loan repayments. And that might be exactly what you need while you try to cobble together your new adult life after leaving school. Still, there are a few things you can do during this time to save on interest later on down the road.
Sign up for a repayment plan
The company that handles your student loan repayments — known as a loan servicer — should reach out to you at some point during your grace period with information on when your first repayment is due and how to sign up for a repayment plan.
Federal student loans come with a long list of repayment plans, including several based on your income. Realistically consider your career path and what you can afford. Some private student loans also have multiple options, though most require full repayments once your grace period is up.
If you’re in a low-paying field, you may want to consider income-based repayment. But if you already have a comfortable job lined up and can afford standard repayments, you could save a lot by signing up for a plan that costs more in the short term.
Set up autopay
Most federal and private student loan providers offer a discount on interest to all borrowers who set up autopay. Typically, this is around 0.25%, though some private lenders go as high as 0.5%.
Consider checking with your servicer to make sure there are no other rate discounts you can qualify for. For example, Citizens Bank offers an additional 0.25% discount to borrowers who have an account with the bank.
Start making repayments if you can afford to
The sooner you start making repayments, the less time interest has to add up on your loan. You’ll save the most if you make full repayments right away. But even paying off the interest that adds up each month can make a difference in how much you’ll pay, especially if you have a long loan term.
What is interest capitalization and how can I avoid it?
If you don’t pay off the interest that adds up during your grace period, your lender implements something called interest capitalization. Basically, it adds the unpaid interest to your loan balance. After your interest capitalizes, you’re on the hook for paying back a larger amount of money — and you pay more in interest since it’s based on a larger loan balance.
Borrowers with subsidized federal loans don’t have to worry about interest capitalization — the government covers your interest payments while you’re in your grace period. Otherwise, you might want to ask your servicer about making interest-only or small monthly repayments that you can afford.
How to get a student loan grace period extended
There are two ways that you can extend your student loan grace period on a federal loan:
- Go back to school. If you go back to school full time before your grace period is up, you can extend your grace period to six months after you drop below half-time status again.
- Go on active military duty. You can extend your student loan grace period to six months after your active duty ends if you’re called at least 30 days before your current grace period is set to end.
Typically, you can’t extend your student loan grace period if you have a private student loan. Reach out to your lender if you’re struggling to find a job or otherwise can’t afford repayments when your grace period is up.
Consolidating debt might shorten your grace period
Consolidating your federal student loans with a Direct Consolidation Loan has many benefits like making you eligible for more repayment programs. However, your first repayment is due about two months after your funds are disbursed.
If you’re thinking of consolidating your student loans and want to take full advantage of your grace period, consider waiting a few months first.
Compare student loan refinancing providers
Interested in refinancing your student loans to get better rates or better repayment terms? Consider these providers.
The grace period on your student loans is meant to give you some flexibility before you’re responsible for making full repayments. But taking steps like signing up for autopay and making minimal monthly payments could help you save big in the long run.
Read our guide to students loans to learn more about how they work.
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