January 23, 2022

How the Student Loan Grace Period Works

Earning a degree is a major accomplishment. But if you took out student loans to cover college costs, the payments can be a financial burden once you leave school. Fortunately, many student loans come with a grace period, meaning you may not have to worry about making payments immediately after graduation.

Although it might be tempting to put off thinking about your debt until several months down the road, you can set yourself up for success by taking advantage of that student loan grace period. Learn how student loan grace periods work and what you can do during that time to best manage your debt.

What Is a Grace Period for Student Loans?

A student loan grace period is the time between when you leave school and when your payments begin. “It’s designed to give you time to find a job and get your finances in order before you have to worry about your payments,” says Kat Tretina, an Orlando-based personal finance writer and certified student loan counselor.

The grace period for federal student loans kicks in when you graduate, leave school or drop below half-time enrollment. The federal government pays the interest on subsidized loans through the grace period. Not so with unsubsidized loans – and any accrued interest will be added to the loan balance if unpaid.

If you have federal loans and you re-enroll on at least a half-time basis before the grace period expires, it resets, according to Mark Kantrowitz, a student loan expert and author. “This is why the summer break does not use up part of the grace period,” he says. On the other hand, if you were to take a full semester off of school and use up the grace period, you’d enter repayment immediately. Kantrowitz notes there is usually a transition period of up to 60 days while loans are shifted from an in-school deferment to repayment status.

If you’re a military service member called to active duty for more than 30 days, your time away wouldn’t count toward the grace period and you’d have the full term available after returning.

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How Long Is the Grace Period for Student Loans?

The federal student loan grace period is usually six months. The exceptions, Tretina notes, are Perkins loans, which have a nine-month grace period and haven’t been disbursed since 2018, and PLUS loans.

“PLUS loans don’t have grace periods, but borrowers can opt to defer payments until six months after graduation,” she says. If you received a PLUS loan as a graduate or professional student, that deferment happens automatically.

Grace periods for private student loans vary by lender, and some have no grace period at all.

“Also, some private lenders have a total forbearance period for the in-school and grace period of 51 months, so if the borrower takes more than four years to graduate, their loans might go into repayment in the middle of the fifth year or immediately upon graduation,” Kantrowitz says.

You can review the promissory note you signed to find the length of your grace period, or contact your lender directly.

“While grace periods usually cannot be extended, you may be eligible for a hardship forbearance if you’re ill or unemployed. If you qualify, you can postpone your payments until your situation improves,” Tretina says.

Below is a breakdown of grace period lengths by loan type.

Loan Type Grace Period Length
Direct subsidized loans Six months
Direct unsubsidized loans Six months
Perkins loans Nine months
PLUS loans None, but borrowers may be able to defer for six months after the student graduates, leaves school or drops below half-time enrollment status
Private loans Varies

How to Make the Most of Your Student Loan Grace Period

If you’re getting ready to leave school, it’s important to prepare for student loan payments to start. Here are a few steps you can take to make the most of your grace period:

Get your finances in order. The months before your student loan payments are due are a great time to get your finances on track and prepare yourself for the added monthly expense. There are often a lot of startup expenses after you graduate. “You have a new job and new business attire and maybe a new car,” Kantrowitz says. “You may have moved and have a deposit on a new apartment and utilities.” So use this period to create a budget and set aside some savings.

Set up autopay. If you’re on solid financial footing and can afford your upcoming payments, you may want to make them automatic. This way, you won’t have to worry about missing a payment, which can lead to penalties and can hurt your credit score. Plus, some lenders offer interest rate discounts for setting up autopay. “Once the grace period ends, your payments will automatically be debited from your bank account,” Tretina says.

Consider making payments ahead of time. Making payments during your grace period can help you get ahead on paying down your debt. If you aren’t able to make the full payment amount, even a partial payment or single lump-sum payment will ensure you have a smaller balance to tackle when the grace period ends.

You might also consider making interest-only payments. “If you can’t afford to pay the principal and interest during the grace period, making payments against the interest or paying a flat amount each month – such as $25 – can reduce how much interest builds over time,” Tretina says. Unless you have federal direct subsidized loans, interest usually accrues on your student loans during the grace period. (Currently, federal student loans are in an automatic forbearance period through May 1, 2022, during which interest accrual is paused.)

Look into alternative repayment plans. On the other hand, you might find that your upcoming payments are too expensive to handle. “If you find out that your payment is higher than you can afford, contact your loan servicer right away to see if there are alternatives,” Kantrowitz says. For example, you might qualify for deferment or forbearance, which would allow you to pause your payments further (though interest may continue to accrue). Or you might qualify for enrollment in an income-driven repayment plan, which reduces the size of your federal student loan payment to a small percentage of your income. In some cases, it’s possible to qualify for a payment of $0 per month.

Private lenders may not have the income-based repayment plans offered for federal loans, but check whether your lender has a repayment plan that’s right for you and your budget.

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