Credible takeaways
- A student loan grace period is a set amountof time during which you don't have to make student loan payments.
- Most student loan borrowers are entitled to a grace period upon graduation or when they drop below half-time enrollment.
- The student loan grace period is six months for most federal student loans and nine months for Perkins loans.
- Interest continues to accrue on most loans during grace periods, so it’s a good idea to make interest-only payments if you can afford it.
When you graduate, leave school, or drop below half-time enrollment, you must begin repaying student loans. However, you don't usually have to begin making payments right away.
Most lenders provide a student loan grace period so you have time to prepare to start payments.
If you have loans from the Department of Education, the federal student loan grace period usually lasts six months, while the grace period for private student loans varies by lender.
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What is a student loan grace period?
A student loan grace period is a temporary pause on required payments after you graduate, leave school, or drop below half-time enrollment. Grace periods give new graduates time to find a job before they begin repaying their loans.
Which student loans get a grace period, and how long is it?
Student loan grace periods vary significantly for different types of loans. You’ll need to check your promissory note to find out how long yours is. Here’s the average grace period for different types of loans:
- Federal Direct Subsidized and Unsubsidized loans: Both subsidized and unsubsidized loans have a six-month grace period.
- Federal Perkins loans: Federal Perkins loans are no longer available, but they offered a nine-month grace period.
- PLUS loans: There is no grace period for PLUS loans, but graduate or professional students automatically qualify for a six-month deferment during which no payments are required. Parent borrowers can also request a six-month deferment from their servicer.
- Private student loans: Most private student loans have a grace period, but you’ll have to check with your loan servicer to find out what it is.
Does interest accrue during a student loan grace period?
Interest accrues during student loan grace periods on most, but not all, student loans.
- The government pays interest on subsidized loans during your six-month grace period.
- Interest accrues during the grace period for unsubsidized or PLUS loans, and interest is capitalized (added to the principal balance) when repayment begins.
- Interest accrues during the grace period for private loans.
It's important to understand the impact of interest capitalization.
“Interest capitalization negatively affects a student loan borrower because once the grace period ends, any unpaid interest may be added to the loan’s principal balance,” explains Leslie Tayne, Esq., a finance and debt expert and founder of Tayne Law Group.
“Because your balance is now bigger, your future interest charges grow too, making the loan more expensive over time. This can make your monthly payments increase and cause the borrower to pay much more over the full life of the loan."
What happens after the grace period ends and student loan repayment begins?
Once your student loan grace period ends, your repayment obligation begins. At that time, your servicer will notify you of your repayment schedule.
When you start repayment, you can choose a payment plan, set up autopay, and make other important decisions regarding your loans.
Tayne suggests reviewing all of your payment plan options carefully at this time, including income-driven repayment plans, to see which best fits your finances.
Editor insight: “I recommend looking at both monthly payments and total interest costs when comparing payment plans. While loans with lower payments may seem attractive, remember that you will be in student debt for longer and spend more on interest.”
— Christy Bieber, Student Loans Editor, Credible
How to make the most of your student loan grace period
While you don't have to make payments on your student loans during your grace period, you may want to do so anyway.
“The best thing that borrowers can do to make the most of their grace period is to make payments on the interest as early as possible, to avoid it being added to the principal balance later,” says Tayne.
You should also consider signing up for autopay to take advantage of interest rate discounts.
“It’s always recommended that borrowers or their families take advantage of payment programs to reduce interest or principal,” adds Tom O’Hare, a holistic college advisor at Get College Going, which provides college planning and financial aid coaching. “This can be while a borrower is in school, during the six-month grace period, or during an eligible deferment period.”
FAQ
When does my grace period start?
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Do Parent PLUS or Graduate PLUS loans have grace periods?
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Should I pay interest during the grace period?
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Do private student loans have grace periods?
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Can a grace period prevent default if I'm unemployed after graduation?
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