Student Loan Grace Period: What It Is and How It Works

A student loan grace period lets you postpone payments after you graduate, leave school, or drop below half-time enrollment. Most federal student loans come with a six-month grace period. Private student loans may also offer a grace period, but the length and availability depend on the lender. 

A grace period can give you breathing room while you find a job, but interest charges may accrue during this time. Here's more on how the student loan grace period works and how you can use this time to prepare for repayment.  

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What is a student loan grace period?

A student loan grace period is an interim after you graduate, withdraw from school, or drop below half-time enrollment during which you're not required to make payments. It gives you some time to search for a job and get your finances in order before you have to start paying back your student loans. 

“The grace period is designed to allow you to leave school, find employment, get a paycheck, and be ready to make payments on your loans,” says Robert Farrington, student loan expert and founder of The College Investor. 

Your first student loan payment will be due when the grace period ends. 

How long is the student loan grace period?

The typical student loan grace period varies by loan type:

Which student loans have grace periods?

Some student loans come with a built-in grace period, while others require you to make a request or don't offer one at all. It all depends on the type of loan you have. 

Federal Direct Subsidized and Direct Unsubsidized loans both offer an automatic six-month grace period after you leave school or drop below half-time enrollment. You're not required to make payments during the federal student loan grace period. 

Federal PLUS loans, which include grad PLUS loans for graduate and professional students and parent PLUS loans for parents of dependent undergraduates, don’t have an official grace period, but you can defer payments:

• Grad PLUS loans: These loans automatically qualify for deferment that postpones payments while you're in school and for 6 months after you graduate. Essentially, this window of time acts as a grace period. 
• Parent PLUS loans: These loans don't automatically go into deferment. However, parents can request to postpone payments through deferment while the student is enrolled in school at least half-time and for 6 months after they leave, using the Parent PLUS Borrower Deferment Request form. 

As for private student loan grace periods, the rules vary by lender. Many offer a grace period that spans six or nine months, but it's not guaranteed. 

Does interest accrue during the grace period?

Even though you don’t have to make payments during a grace period, interest charges may still be accruing on your student loans. Whether interest is adding up behind the scenes depends on the type of loan you have.

With federal Direct Subsidized Loans, interest does not accrue during your grace period or other periods of deferment. The government covers interest charges, so your balance won't grow during this time. 

However, Direct Unsubsidized Loans, PLUS loans, and private student loans typically do accrue interest during the grace period. If you have a PLUS loan or private student loan, that interest may capitalize, or be added onto your loan balance, when your deferment or grace period ends. 

Interest capitalization can make your debt more expensive. If you want to reduce your long-term borrowing costs, consider paying off the interest during your grace period, even though it's not required. 

What happens when the grace period ends?

The end of the grace period is when student loan repayment starts. If you have federal student loans, your servicer will automatically place you on the Standard Repayment Plan. However, you can choose a different repayment plan at any time. 

“Students should review their repayment options and work with their loan servicer to select a repayment plan that best fits their budget,” says Cathy Mueller, executive director of Mapping Your Future, a nonprofit organization that provides college, career, and financial-aid education. “We strongly recommend borrowers reevaluate their repayment plan every year to determine if they're on the best plan based on their current financial situation.”

For federal student loans, you'll receive your repayment schedule at least 30 days before your first student loan payment is due. You'll also get your first bill at least 21 days before the payment due date. This can vary if you have a private lender. Make sure your loan servicer has your updated contact information so you don't miss any communications. 

You can also set up online accounts with your student loan servicers, where you'll manage your loans and make payments. 

“If you fail to begin making payments when required, you'll enter delinquency and eventually default,” warns Farrington.

Consider using autopay, which lets your servicer automatically withdraw payments from your bank account each month and can help ensure you don't miss any payments. Plus, you'll typically receive a 0.25 percentage point discount on your interest rate. 

How to use your grace period wisely

While it may be tempting to delay repayment of your student loans for as long as possible, your grace period is an opportunity to prepare for repayment. Some steps you can take include: 

• Choose a repayment plan: Federal student loans are currently eligible for various repayment plans, including the Standard Plan, Extended Plan, Graduated Plan, and income-driven repayment. The federal loan simulator tool can help you compare your payments on each plan. 
• Set up autopay: Autopay can help you avoid missing payments and may score you a discount on your interest rate. You can opt in by logging in to your loan servicer's account and providing your bank account details. 
• Make interest-only payments: If you can afford it, paying the interest during your grace period can reduce your borrowing costs. 
• Explore refinancing options: Refinancing could be a wise move if you can qualify for a better interest rate, especially if you borrowed private student loans at a high rate. You can use this time to explore your options or improve your credit score so you can refinance in the future. Keep in mind, though, that refinancing federal student loans with a private lender means losing access to federal benefits and forgiveness programs.

Considering how you'll add student loan payments to your monthly spending plan is also important.

“Prepare a budget with your loan payments included,” recommends Mueller. “It’s a good idea to understand your living expenses with the loan payments as a part of your budget.”

By using your grace period wisely, you'll be ready to hit the ground running when your first full student loan payment is due.