What is a student loan grace period?

Learn all about what is a grace period for your student loans, the eligible loans under it and how to use this time to your maximum advantage.

Updated by Heibha Passah on 22nd April 2019


Understanding student loan grace period

Grace Period is the period after you graduate from college till the time you need to start repaying the loan. It is provided for both Federal and Private student loans and is usually for a period of 6 months. But there are loans which have a grace period longer than that and some of the loans have none.

You should be aware that for some loans, the interest accrues during this period making the amount to be paid back more expensive. You can only use it once, which means that if a borrower has taken multiple loans and have used it on one loan, then it won’t be applicable to the other loans.

The grace period is provided to the borrowers to give them sufficient time to find a job and earn income before repayment of loan starts.


Table of Contents

Number Topics
1 Loans with a grace period
2 To-do list during the grace period
3  How to extend a student loan grace period?
4. Student Loan Grace Period FAQs

Loans with a grace period

The following table shows the various student loans which have grace periods. It also shows the length of the grace period and the interest, if it accrues or not.

Name Grace Period allowed
Does interest accrue?
Direct Subsidized Loans 6 months No
Direct Unsubsidized
Loans
6 months Yes
Subsidized Stafford
Loans
6 months No
Unsubsidized Stafford
Loans
6 months Yes
PLUS Loans No grace period --
Private Student Loans 0-9 months
(depending upon the lender)
Yes

To-do list during the grace period

It is understandable for you to sit back and relax after graduating, after all the stress and the heavy load. But you should also be responsible and think about the repayment of the loan and plan accordingly during the grace period. Moreover, some loans have interest accruing during this period, so you have to take certain measures in order to reduce this burden and try to repay your loans fast.

  • Be prepared - Start preparing yourself by consulting with the loan servicers to know when will the grace period end and the repayment period starts. It is important for you to know all this and start preparing yourself in order to be able to repay the loans in a smooth way and avoid difficulties.

  • Start an emergency fund - You can put aside some money as an emergency fund which can be of help during unfortunate or unforeseen events as it’ll be difficult to save money later on when repayment period starts. [Learn more about student loan repayment plans

  • Find a job - It is important for you to find a job and start earning income before the repayment of the loan starts so as to be prepared for timely payments.

  • Make payments before the end of the grace period - This can be done if you have enough funds for monthly repayments as it’ll reduce the amount of interest accruing. This will help you to reduce the amount of the loan to be repaid in the long run.

  • Pay off the interest before it capitalizes - If you don’t have enough funds to pay off the monthly amounts, you can just pay for the amount of interest that’ll accrue during the grace period so as to reduce the burden.

  • Set up Autopay - Autopay or Automatic Pay is a tool which is used to automatically make payments for the loan. Using this tool also allows the borrowers to avail discount on the interest up to 25% which can go up to 50% for private loans.

  • Make a repayment plan - It is important for you to explore and understand the various repayment plans available for you. You can take the help of your loan servicers and choose the one, which according to you, will give the maximum benefit.

  • Loan consolidation - The student loan consolidation plans offered by the Federal Government is applicable for borrowers with more than one federal loan and more than one loan servicer. It can give more options of repayment and reduce the interest rate, but can also remove any progress of repayment made on the other loans.


How to extend a student loan grace period?

In nearly all cases, borrowers are able to extend their grace period for months, or years even. It can be done by keeping in mind two terms-

(i) Deferment- It is the act of postponing the repayment of a loan. Students can qualify for a deferment if they go back to school, go for active military duty, are unemployed or joins a Peace Corps Service.

(ii) Forbearance- It is an act of refraining from repayment of a loan. Students qualifying for forbearance are those who are pursuing their medical internship or residency programs, certain teaching services and whose monthly payments are 20% more than the monthly incomes.

If you are eligible for deferment, there are certain loans in which you are responsible for payment of interest, and others which you are not.

 

[Learn more on Deferment and Forbearance here

 

Loans which you are responsible for making interest payments - 

  • Direct Unsubsidized Loans

  • Unsubsidized Federal Stafford Loans

  • Direct PLUS loans

  • Federal Family Education Loan (FFEL) PLUS Loans

  • The unsubsidized portion of Direct Consolidation Loans

  • The unsubsidized portion of FFEL Consolidation loans

Loans which you aren’t responsible for making interest payments - 

  • Direct Subsidized Loans

  • Subsidized Federal Stafford Loans

  • Federal Perkins Loans

  • The subsidized portion of Direct Consolidation Loans

  • The subsidized portion of FFEL Consolidation Loans

It is not a good idea for you to extend your grace period, especially for those loans where interest accrues, it just becomes more expensive to pay in the later date. Also, there are so many repayment plans available which are better and costs less.

Going through the repayment of student loans can be a very difficult situation. There are times when you feel like you can’t afford to pay back the loan. But there are a lot of steps which you can take in order for you to get through this painful situation with ease. The above measures are some which will help you be well prepared to face the situation.


Student Loan Grace Period FAQs

1. What does grace period mean for student loans?

It is the period between the time you graduate till the time you need to start repaying your loans. It is usually for a period of 6 months.

2. How do I extend my grace period for student loans?

It can be extended by either applying for deferment or forbearance. Deferment is usually granted to students who go back to school, or who are in armed forces, or by students who are unemployed.

Forbearance is granted to those students pursuing their internships in the medical field, residency programs, students going for certain teaching services and others whose monthly payments are 20% more than the monthly income.

3. Do grace periods hurt your credit?

Interest accumulates on your debt even during your grace period, that is why making your credit payments during grace period actually has a positive effect on your credit score as it’ll reduce your debt and interest fees.

4. Do all student loans have a grace period?

No, all student loans do not have a grace period like PLUS loans. Federal Perkins Loans depend upon the lender.

5. Does FedLoan have a grace period?

Federal loans usually have a grace period of 6 months except for Federal Perkins loans of 9 months and PLUS loans with no grace period.

6. Is there a grace period for Navient student loans? If yes, how long?

Navient provides servicing for both Federal and Private students loans. For federal loans, the grace period is 6 months except for Federal Perkins loans with a period of 9 months and PLUS loans having no grace period. Private loans have a grace period ranging from 6-9 months depending upon the lender.

7. How long is a student loan term?

Depending upon the type of loan, i.e. Federal and Private Loans, and the type of repayment plan, the loan term is generally for 10 years. But extended repayment plans usually have a 25-year term and consolidated loans up to 30 years.

8. How long do you defer student loans?

In case of economic hardship, deferment can be done up to 12 months and is renewable for a maximum of 3 years. For unemployment, it is up to 6 months, renewable up to 3 years maximum. 

9. Is it bad to defer student loans?

No, it is not bad in the short run if you are having troubles repaying the loan. But in the long run, it can be expensive because of the accumulating interest in which you can opt for other better repayment plans.

10. What happens if I never pay my student loans?

The loan provider, guarantor, and the federal government will take various legal actions to get back the money owed. You lose out on various benefits like financial aid, your credit score will go down. You will be subjected to wage, taxes, social security, federal payments garnishments, and more.