After graduating, it’s time to move on from school and pay back your loans. Many student loans have a grace period, but what is a grace period for student loans, exactly? More importantly, should you even use it?
Read on to learn everything you need to know about student loan grace periods.
What is a grace period for student loans?
A student loan grace period offers you extra time before your first payment is due. This helps while you’re looking for a job or weighing the pros and cons of getting a graduate degree.
For many federal student loans, you have a six-month student loan grace period when you don’t have any payments due.
If you have private student loans, you’ll need to talk to your lender about whether it offers a grace period. Private lenders don’t have the same leeway and protections as federal student loans. On top of that, each private lender may have a different policy around grace periods. Some lenders, like Sallie Mae, do offer a comparable grace period of six months.
When does your grace period begin?
A student loan grace period can take effect in a variety of situations. In many cases, your six-month grace period begins after graduating so you can get your finances in order before your first payment is due.
But that’s not the only time your grace period might be in effect. If you leave school or end up dropping below half-time at school, your grace period begins.
When does your grace period end?
For all federal loans except PLUS Loans, your grace period ends after six months. So once you graduate, leave school or drop below half-time, your grace period begins and then ends after six months.
For example, if you graduated in May, your first payment will be due around the holiday season. Make sure to stay in touch with your loan servicer and get on a repayment plan that works for you.
Does interest accrue during your grace period?
The short answer: It depends.
For most student loans, interest accrues during the grace period. But if you have Subsidized loans, the government covers any interest charges during your grace period.
Which federal student loans have a grace period?
Most federal loans are eligible for a grace period — but not all. Here are the federal loans that are eligible and not eligible for a grace period.
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- PLUS Loans
According to the Federal Student Aid website, “PLUS loans have no grace period. They enter repayment once they are fully disbursed but may be eligible for a deferment.”
If you’re taking out Grad PLUS Loans, be aware that you’ll need to start making payments ASAP to avoid delinquency or default.
Grad students who need some extra time before their first payment hits should talk to their loan servicer immediately.
Caveats about grace periods
As noted above, it’s important to know that PLUS Loans don’t have a grace period. Take that into consideration so you’re prepared to make payments upon graduating or contact your loan servicer about deferment.
Another thing to consider is how consolidating your loans affects your grace period. If you have many federal student loans, you can consolidate, or merge all of your loans into one, using a Direct Consolidation Loan.
Sounds great, right?
But be aware that if you consolidate, you’re cutting your grace period short. Let’s say you consolidate two months into your grace period. That means you’ll forfeit the remaining four months of your grace period.
According to the Federal Student Aid website, you can expect to make your first payment two months after the Direct Consolidation Loan is paid out.
How to make the most of your grace period
Here are some tips to get the most out of your student loan grace period:
- Find out who your loan servicer is through the National Student Loan Data System and/or AnnualCreditReport.com
- Create an account on your loan servicer’s website
- Add your banking information so you can make payments
- Get on an appropriate repayment plan, if you don’t want to be on the Standard Repayment Plan
- Signing up for autopay may get you a 0.25% interest rate reduction
- Adjust your monthly budget to prepare for making student loan payments
Taking these steps during your six-month grace period can help you make sure you’re prepared for your first payment so you don’t miss your due date.
Making payments during the grace period
The grace period is a benefit for borrowers, but here’s the thing: It’s an option, not a mandate. If you can afford to make payments, you should get started and not use your grace period. Doing so helps you limit the interest that accrues and helps you get ahead on your repayment.
If you really want to consolidate but are worried about losing your grace period, weigh the pros and cons. If you truly can’t afford any payments, you may want to wait. But if consolidating can make your payments more manageable, then you should get started with repayment.
Whatever route you go, the key is to take action.
Whether you prepare your finances and get your loan and repayment info in order during the six-month grace period or you start repayment right away, create a plan. Having a plan in place can make your student loan repayment journey more manageable and help you avoid any trouble like delinquencies or default.