Student loan repayment doesn’t start right after getting the loan. The grace period begins after you either graduate, leave school, or drop below half-time enrollment.
Written by Attorney Jenni Klock Morel.
Updated June 22, 2022
Student loan repayment doesn’t start right after getting the loan. Federal student loans and even most private student loans have a grace period, which is a number of months given before monthly payments become due. The grace period begins after you either graduate, leave school, or drop below half-time enrollment. Borrowers can think of the grace period as a time to find a job and get their finances in order before the first payment is due. Read on to learn more about the student loan grace period and repayment options.
What Does the Grace Period Mean for Student Loans?
The length of the grace period depends on the loan type and loan terms. Federal Direct Loans, Federal Stafford Loans, and Federal Direct PLUS loans for graduate students all have a six-month grace period. Federal Perkins loans have a nine-month grace period. The grace period of private student loans, if any, will vary by each private lender.
Deferment vs Forbearance
During the grace period, your loans are deferred. A deferment is a temporary postponement of payment on a loan and is allowed when certain conditions are met. The grace period deferment is available when a borrower graduates, leaves school, or drops below half-time enrollment. Other types of deferment are available when eligibility requirements are met for military service, economic hardship, cancer treatment, and other situations. Federal student loan servicers must grant deferment when the borrower is eligible.
Forbearance allows the borrower to temporarily stop making monthly student loan payments or temporarily make smaller payments. Federal loan servicers are required to grant some types of forbearance, while other forbearances are left up to the discretion of the loan servicer.
Interest & the Grace Period
Subsidized loans are federal student loans for undergraduates based on need. The U.S. Department of Education pays the interest on subsidized loans during the grace period and while the borrower is in school at least half-time. Unsubsidized loans are for undergraduate and graduate students that are not based on need. Interest is charged on unsubsidized loans during grace periods and in-school deferment.
The majority of federal student loans are unsubsidized and interest begins to accrue as soon as the loan is dispersed. Interest is charged on all loan types during forbearance.
Capitalization is the addition of unpaid interest to the principal balance of the loan. If accrued interest isn’t paid off after a period of deferment or forbearance, it is then added to the principal balance of the loan. Moving forward interest accrues on the new loan balance, meaning that interest is being charged on interest. This is bad for the borrower.
In response to the COVID-19 coronavirus pandemic, The U.S. Department of Education temporarily set the interest rate to 0% on federal student loans. Federal student loans are not accruing interest through at least September 30, 2021.
Consolidating Student Loans during the Grace Period
Consolidating student loans involves bringing all of your student loans under one new loan. This allows for one single monthly payment and a fixed interest rate, which may be lower than your original loans and does away with the unpredictability of variable-rate loans. You can also extend your repayment term in a consolidation. A longer loan can lower your monthly payment but lead to a higher total loan repayment amount because of interest payments over the long run. Be aware that once you consolidate, you lose any remaining grace period.
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Can You Extend the Grace Period on Student Loans?
If your grace period is soon ending, you can explore if you have an option to extend the grace period available to you. If not, then you can explore your available options for after the grace period ends.
Grace Period is Available Once
The grace period is only available once per loan. If you go back to school after the grace period ends, that loan won’t have another grace period after graduation from the later program. Any new student loans taken out during a return to school will come with a grace period.
Extending Your Grace Period
Generally, if you return to school at least half-time before the grace period ends, then your grace period clock is reset. Student loan payments will not be due while you’re in school and your previous loans will get a new six-month (or nine-month for Perkins loans) grace period when you graduate, fall below half-time attendance, or leave school.
Another way that a federal student loan grace period is extended is through active duty military service. If the borrower is called to active military duty for more than 30 days before the end of the grace period, it will reset and the borrower will receive the full grace period upon return from active duty.
Private student loan lenders may offer a grace period extension or other deferment or forbearance options. Check directly with your lender to learn about the repayment options available to you.
Can You Pay Student Loans During the Grace Period?
You can make payments on your student loans during the grace period. If you can manage payments during this time, it is a wise idea. In particular, it is a best practice to pay off any accrued interest amounts when your grace period (or any deferment or forbearance period) ends so that interest is not capitalized and added to the principal loan balance.
Be aware that any payments you make during the grace period will not count as qualifying payments in any loan forgiveness programs.
What Happens if I Can’t Pay My Student Loan after the Grace Period?
After your grace period, your loan servicer will put your loan on the standard repayment plan. You can request a different repayment plan at any time. If you can’t afford the payment under the standard plan, contact your loan servicer to discuss other options.
An income-driven repayment plan extends the repayment term to 20 or 25 years and bases your payment amount on your discretionary income. A graduated repayment plan starts off with a lower monthly payment and then builds over time. This is an ideal option for those beginning their career and anticipating income growth in the coming years.
Contact your loan servicer if your grace period is ending and you are not able to make your student loan payments. If the repayment plan options don’t give you a monthly payment you can afford, you might be eligible for deferment or forbearance options. You don’t want to miss student loan payments.
Defaulting on your student loans will harm your credit report and credit score. Also, federal student loans in default status are not eligible for deferment, forbearance, or repayment plan options, such as income-driven repayment or a graduated repayment plan. And plans to return to school could be ruined because you can’t get financial aid or federal student aid (more loans) if you default on your previous federal student loans. Loan borrowers with defaulted student loans can get relief through student loan rehabilitation or loan consolidation.
Student loans come with a grace period so borrowers don’t have to start paying back the loan right away. Most federal student loans offer a six-month grace period. The student loan grace period gives you time to find a job and make enough money to pay your loan payment when it becomes due. If you’re not able to make your payment after the grace period ends, contact your student loan servicer to learn about the repayment options available to help you.