How Does the Student Loan Grace Period Work?

FT Contributor
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As a college graduate or upperclassmen, your mind probably goes directly towards all of the student loan debt you’ve accrued during your schooling. Fortunately, most lenders offer a grace period after graduation. This is an amount of time following graduation before the borrower must begin repaying their loans.

Grace periods allow for some space so you have time to acquire a job and organize your personal finances before beginning to repay your student loans. Learn more about what grace periods mean for recent graduates and how they work.

Grace Periods: Points of Caution

While grace periods are certainly helpful to recent graduates, they do come with a bit of red tape. There are several stipulations to keep in mind when it comes to grace periods. Below are a few points of interests and caveats of grace periods that college grads should be aware of:  

  1. Members of the armed forces can extend their grace period. Those who have served more than 30 days of active military duty are eligible for a grace period of six months after you return from duty. In some cases, members of the armed forces can receive a grace period of up to three years.
  2. Only one grace period is allowed for each federal loan. Alternative loan companies offer grace periods at their own discretion, so it’s important to clarify the terms of their grace period.
  3. Borrowers may need to be enrolled for a minimum number of class hours to still be considered a student. A grace period can start preemptively if you fall below half-time enrollment, so it’s important to maintain a full-time student status to prevent that from happening.
  4. If you choose to consolidate your loans during the grace period, the grace period ends and you will receive a bill two months after your Direct Consolidation Loan is dispersed.

How Long Is the Federal Student Loan Grace Period?

The average grace period for federal student loans is six months, but the type of loan you have may offer a different amount of time. Below, we’ll explain the grace periods for a variety of federal student loans.

  1. Direct Subsidized loans often have a grace period of six months. These loans accrue interest during the time you’re in school, which is paid for by the federal government. While you’re in school, you don’t have to pay interest on these loans, but you should pay interest during the grace period if at all possible, as they continue to accrue interest during that time.
  2. Direct Unsubsidized loans also typically have a grace period of six months. Unlike subsidized loans, the federal government does not offer an interest subsidy on these loans. This means you’re responsible for interest during school and the grace period.
  3. Stafford loans also allow a grace period of six months. They can be subsidized or unsubsidized, with similar rules regarding interest as federal loans.  
  4. Direct PLUS loans for graduate students and for parents also have a grace period of six months. It’s important to note that those applying for Parent PLUS loans must request a grace period on their applications.
  5. Perkins loans are eligible for a nine month grace period. These are government-subsidized loans that don’t start to accrue interest until repayment begins.

Private Student Loan Grace Period

The grace period of private student loans can vary. Private loans aren’t as regulated as those offered by the government, allowing the lenders more freedom in customizing how their loans work.

There is no legal requirement for private lenders to offer a grace period. Some may offer post-graduation assistance for six months, following the standard set by the Department of Education, but it’s really up to your lender. Others require repayment as soon as the loan is dispersed. Speak with a representative from your loan company for a better understanding of how their grace periods work.

Interest During the Federal Student Loan Grace Period

Interest accrues on all federal student loans during the grace period, with the exception of Direct Subsidized student loans, which are also exempt from accruing interest while you’re in school. Note that almost all private lenders charge interest during their grace period. Some will allow you to add that interest to your outstanding balance, but generally, it’s always best to get a head start on what you owe. If possible, start to make payments on interest during the grace period. Doing so will prevent the interest from being added to your balance and capitalized.

Can You Make Student Loan Payments During Your Grace Period?

Yes, you can start paying off the loan during the grace period. The grace period only indicates the time before you are required to make payments. You are allowed to make payments towards your student loans at any time, including when you’re in school.

Making payments early is a valid strategy if you want to pay off your student loans quickly. It can also be useful if you have an unsubsidized student loan, which will collect interest during the grace period. Even if you start to make payments during the grace period and a financial situation arises that prevents you from continuing payments, there’s no need for concern. You’re not obligated to make payments until the  grace period concludes.

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