What Is The Grace Period
Info for Graduate Students
Once you graduate, are enrolled less than half-time, or no longer enrolled, you normally have a period of time before you start making your monthly payments to begin repaying your federal loans.* This “period of time” is called the “Grace Period”. The Grace Period is 6 months for students who borrowed federal student loans from the Direct or FFEL loan programs . The Grace Period begins the day the student is no longer enrolled at least half-time . Students who have previously used their grace period as an undergraduate or graduate student, will immediately go into repayment on their loans once they are no longer enrolled in at least a half-time status.
*Note: Students who consolidate their loans will go into repayment immediately, losing their Grace Period. The first payment to begin repaying the loans will be due immediately after the loans have been consolidated.
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What Leaving College Would Mean For Your Student Loans
There are more consequences to dropping out of school than just not getting a college degree. You may be out of college, but your student loan debt stays. They are not cancelled, nor can they be readily excused for any given reason. Half time enrollment or taking fewer than half of the anticipated full-time credits in a term would also bear the same consequences as dropping out or leaving school.
Here is what happens to student loans when you drop out of college and your corresponding repayment options.
What Happens to Federal Student Loans
Dropping out of school or being withdrawn from school due to a status below half-time will automatically make a federal students loan under repayment status.
In the case of Pell Grants, the school decides how much of the grant youll have to pay back if you decide to drop out. The money must then be repaid within a specific amount of days, or you can choose to enter a repayment agreement based on your ability to pay.
Depending on the type of student loan you took out, there may be a grace period. Direct subsidized and direct unsubsidized loans both have a grace period of six months. This indicates that withdrawn or dropped federal student wont be required to make a payment during the six month grace period. This gives them the opportunity to look for funds for the payment of their student loans.
There are several student loan repayment options that are provided for by federal law, including:
Standard Repayment Plan
Grace Period For Interest
To be clear, there is no such thing as an interest-only student loan payment. You could, however, choose to pay the interest yourself to save some cash down the road.
You should note that if you choose to do this, there is no separate grace period. Youll still follow the grace period for your loan.
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Grace Periods Vs Forbearance Vs Deferment
A grace period is not the same thing as forbearance or deferment. However, all of these let you pause making your student loan payments.
Like a grace period, a period of forbearance suspends your payments while interest still accrues. But you must proactively request forbearance and may be required to submit documentation to prove your eligibility. Forbearances last for up to 12 months at a time.
During a deferment period, you donât have to make payments, and your loan does not accrue interest .
In-school deferment can last at least four years , and most other deferments last for up to three years.
Do Student Loans Have A Grace Period
For the most part, student loans do have a grace period. Federal student loans typically have a six-month grace period, but the grace period is nine months for those who borrow the Federal Perkins Loan.
Private student loans are offered by private lenders, so the length of the grace period varies by lender. The grace period will be six months in most cases with private lenders, but some offer nine-month grace periods to borrowers, and some have no grace period at all.
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How Long Is The Grace Period For Student Loans
For most federal loans, you get a 6-month grace period. A Perkins loan, which is a federal loan, can give you up to a 9-month grace period, but this can look different at different schools.
Generally, grace periods for federal loans look like this:
- Direct Unsubsidized and Direct Subsidized Federal Loans: These loans traditionally offer a 6-month grace period.
- PLUS Loans: There are no grace periods for undergraduate students, but you get an automatic 6-month deferment period if you received the loan for graduate school. Parents who take out a PLUS loan can request a 6-month deferment.
- Perkins: A Perkins loan deferment can last up to 9 months, but the grace periods length depends on the school that gave you the loan.
Some Ways Student Loan Refinancing Can Help
Unlike using a Direct Consolidation Loan, refinancing your student loans doesnt automatically mean that youll have a shorter grace period.
Refinancing is when a private lender pays off your loans and gives you a brand new loan. Refinancing with a private lender could potentially result in a lower interest rate or more favorable terms.
If you are managing a number of student loans, refinancing may help to simplify your life by giving you one loan to pay, instead of multiple loans to remember.
However, not all private lenders will honor your federal student loan grace periodif you choose to refinance during your grace period, you may have to begin repayments as soon as the refinance loan is disbursed.
Some private lenders will still honor your six-month grace period, and SoFi is one of them. If you want to get ahead of those student loan payments, and are searching for a lower rate and more flexible terms, refinancing might be worth considering.
A grace period can be a helpful time to pause and consider your finances. As a recent graduate, you probably have a lot on your plate as you find your footing in your career and figure out how to become an adult in the working world. Part of adulting might include creating a student loan repayment plan.
Dont let your grace periods end catch you off guard. If you plan ahead, and plan for future payments, you could end up on more solid financial footing.
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Tips For Navigating A Non
Depending on the type of federal student loan you have, interest will continue to accrue during periods of non-payment like a grace period. In that case, once payments restart, any outstanding interest will be capitalizedadded to the principal balanceeffectively leaving you to pay interest on your interest.
That said, if you are in a financial position to make interest-only payments during a grace period, doing so can help keep your loans principal balance from growing during that time. In other words, just because you dont have to make payments toward your student loans during a grace period doesnt mean you cant.
How Do Student Loan Grace Periods Work
Student loan grace periods vary in length depending on the type of loan. For most federal loans, once you graduate, leave school or drop below full-time enrollment your grace period will start.
Grace periods are intended to give you some time to settle into your new life. For a new graduate, this hopefully gives you some breathing room to get a job, relocate to a new area and start to pad a savings account. This can help set you up for success when paying back your loans.
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What Are Student Loan Grace Periods Used For
In addition to growing a bit of a savings account, the grace period also allows new grads some time to create a workable budget and/or decide on the best student loan repayment plan given their personal financial situation.
A grace period can also allow students the opportunity to take a break from school for a period of time without student loan payments kicking in.
Do Student Loans Accrue Interest During Grace Period
All student loans, except for Federal Direct Subsidized Loans and Federal Perkins Loans, accrue interest during the grace period. The government pays the interest on a subsidized loan when youre enrolled in school at least half-time, during an authorized deferment, and during the grace period. For other student loans, you are responsible for paying all of the interest. If you have any loans other than a subsidized one and can afford to make interest payments during your grace period, you could lower the amount of interest that would be capitalized once you finally enter repayment.
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Should I Make Payments During My Grace Period
If you can, you should make payments on student loans during your grace period. Many lenders suggest making interest payments to avoid interest capitalization during this time. Otherwise, the accrued interest will increase your overall student loan balance when your grace period ends.
Contact your servicer if you canât afford to make payments during your grace period and donât think you can start paying on your scheduled first payment date. You may qualify for temporary forbearance or deferment.
Save For Future Student Loan Payments
Even if you dont want to start paying off your loans early, its a good idea to start saving for those payments as soon as possible so that you start off on the right track.
If you know you will not be able to make your payments once your grace period ends, your options are few: The requirements for deferment are quite strict, and forbearance requires an application. Simply not paying them is a bad idea as it will put you into student loan default, which will hurt your credit for years to come, and you may also incur additional fees along with accrued interest.
Read more: The Importance of Making On-Time Loan Payments
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While You Wait For Principal And Interest Payments To Begin There Are Few Things You Can Do To Get Ready
Get organizedBy the time you leave college, you might have a combination of federal and private loans. Make sure you understand how many loans you have, what types of loans they are, their interest rates, and who the lenders are. Creating a simple spreadsheet can help you organize your loans.
Understand what your payments will be
The Basics Of Grace Periods
Student loans are unusual in that theyre one of the only types of loans that offer an extended grace period. For most personal loans, payments become due immediately once the loan gets made.
However, the idea behind a grace period for student loans makes sense. Many people attend college somewhere other than where they intend to live, so lining up jobs before you graduate can be difficult. By offering a period of time in which a new graduate can get comfortable in their post-school lives, grace periods are invaluable for student borrowers.
There are several nuances to grace periods that can vary across different types of student loans. Certain grace periods also include deferment provisions under which the federal government agrees to pay the interest that accrues on your loan on your behalf. With other types of loans, the grace period doesn’t stop interest from accruing, and you’ll either have to pay that interest down or have it added to the outstanding balance of your loan.
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What Happens To The Interest During My Grace Period
Just because you dont have to make any payments during the grace period, doesnt mean that interest isnt occurring. In fact, interest will continue to accrue during the grace period your loan balance is still growing during this time.
There are some exceptions such as with the subsidized federal loans. If youve taken out a Direct Subsidized Loan, the U.S. Department of Education will cover the interest accruing on your loan while you’re still in school and during your six-month grace period. Depending on how much you borrow, youll be saving a lot of money in interest.
For others, its a good idea to see how much interest youll end up accrue during the time youre in school and during your grace period. That way, youll be prepared financially when it comes time to make your loan payments.
Can You Extend Your Student Loan Grace Period
A grace period is intended to give students the chance to get a job and start earning an income before student loan payments start. Of course, getting a job within six months of graduating isnt guaranteed. Unfortunately, even if borrowers have not found a source of income in that time, grace periods typically cannot be extended. In this case, borrowers will have to work with their lender to find a way to make payments or apply for a deferment.
There are some exceptions to the rule. For federal student loans, the grace period may be extended if youre called to active military duty for more than 30 days before your grace period ends, or if you reenroll in school at least half time. If either of these applies to you, your extended grace period will end as soon as you return from active duty or drop below half-time enrollment again.
For private student loans, similar rules may apply. However, youll have to check with your individual lender about your options. In some cases, you may need to utilize deferment periods instead.
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Grace Period For Private Student Loans
When it comes to private student loans, grace periods differ. While there are lenders that offer them, there are also ones that dont. As in, youll need to start making payment after your loan is disbursed. Thats why its important to check the fine print to see what your borrower responsibilities are before signing on the dotted line. For instance, the grace period for Sallie Mae loans are typically six months, but others wont for graduate loans.
When Is My First Payment Due
The billing frequency of a loan made under the Stafford Loan and/or Direct Loan Program is completely separate from the Perkins Loan Program.
Stafford Loans are on a monthly billing cycle. The first payment on your Stafford and/or Direct Loan will be due the very next month that follows the conclusion of your six-month grace period. For example, if your grace period ends in the month of December, your first payment will be due in January.
Federal Perkins Loans are on a quarterly billing cycle. After your nine-month grace period expires, the billing cycle starts and interest begins accruing. You will not be expected to make that first payment until the end of the first quarter of the billing cycle. For example, if your grace period ends in December, your first payment will be due in March.
If your grace period has nearly expired and you have not received any billing statement from your lender, contact your lender immediately! Doing so will insure that your lender has your current contact information and provide you the time to make your payment on or before the due date.
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Utilize Your Job Benefits
If youve landed a job and youre immediately eligible for benefits such as health insurance or 401 savings, consider choosing the options that will have the least impact on your take-home pay. For example, you could opt for a low-cost bronze dental plan rather than the more expensive gold plan. You can always reenroll for more robust benefits when youve reduced your debt.
Whats The Difference Between Grace Periods Deferment And Forbearance
If your loan doesnt qualify for a grace period, you may still have options for delaying your federal student-loan repayment, including deferment and forbearance. Whats the difference? Both are similar to the grace period in that its a length of time that youre not responsible for a student loan payment. The difference, however, is in the interest.
If a loan is in forbearance, the loan payments will be temporarily paused, but interest will continue to accrue during the forbearance period. This can lead to substantial increases in what youll pay for your federal loans over time, so youll likely want to consider forbearance very carefully, and look into other options that might be available to you, like income-driven repayment plans .
In deferment, some types of loans may continue to accrue interest, while certain types of loans will have the interest subsidized by the government.
Keep in mind that while grace periods are automatic, youll need to request a deferment or forbearance and meet certain eligibility requirements. In some casesduring a medical residency or National Guard activation, for examplea lender is required to grant forbearance.
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How Long Is The Student Loan Grace Period
For most undergraduate Federal loans, the student loan grace period is 6 months after you graduate.
There is no grace period for PLUS loans. However, most students who take on PLUS loans utilize an in-school deferment so they are still not making payments during school.
For private loans, there is also typically no grace period, but every lender is different. Some undergraduate private loans will allow deferments, or some type of minimum payment while in school. The best private loan grace period we’ve seen is 9 months after graduation.
Student loan refinancing loans have no grace period. You can find the best student loan refinancing here > >