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A student loan grace period is a set period after graduation in which borrowers aren’t responsible for making payments on their student loan debt.
This time frame is important to many borrowers as it provides a window of opportunity to get their budget in order before they start repaying their student loans.
Keep reading to find out what a student loan grace period is, why it’s important, and what you should do before your grace period ends.
In this guide:
- Why do student loans have a grace period?
- Do all student loans have a grace period?
- Grace period on federal student loans
- Grace period on private student loans
- Does interest accrue during the grace period on student loans?
- Where can I find the grace period for all my student loans?
- Can I extend my student loan grace period?
- Can I make payments during the grace period?
- What to do before your grace period ends
Why do student loans have a grace period?
Student loan lenders understand that right after graduation, students are scrambling to find a job and a place to live. They may not be ready to face a bill from their student loan lender.
So they have time to get their finances in order, federal lenders, as well as many private lenders, offer a short grace period in which students don’t have to pay.
The grace period gives borrowers the opportunity to adjust to the transition from student to borrower. It allows them time to establish a budget and plan for their loan payments. It also helps them to avoid defaulting on their loans, which can incur penalty fees and damage their credit score.
Do all student loans have a grace period?
Note: At the time of writing, all federal student loans are deferred due to President Biden’s payment pause to allow time for the courts to rule on the administration’s loan forgiveness plan. The deferment is set to end 60 days after the case is resolved—or 60 days after June 30, 2023—whichever is sooner.
As for private loans, offered via private lenders such as SoFi and Earnest rather than the federal government, some—not all—offer a short grace period. It varies by lender, so check whether yours offers a grace period. Lenders who offer a grace period often stick to the same six months the federal government offers.
Find out more about the differences between private and federal loans.
Grace period on federal student loans
Most federal student loans qualify for a grace period immediately after graduation. Your federal student loan grace period will last six months as long as it’s one of the following loan types:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- FFEL Program Loans
However, PLUS loans—including Parent PLUS loans—don’t have a grace period. Grad PLUS loans for graduate and professional students don’t technically have a grace period, but they qualify for automatic deferment for six months after graduating or dropping below half-time enrollment.
Grace period on private student loans
Private student loan lenders create their own policies around grace periods. As a perk to attract borrowers, many lenders offer some form of a grace period.
These lenders also often have the same rules for when your grace period begins: after graduation or if your enrollment falls to less than half-time.
Does interest accrue during the grace period on student loans?
During the grace period, you don’t need to pay interest on your student loans, but it will continue to accrue.
Interest is the fee lenders charge for borrowing money, so when a loan goes into the grace period, the interest continues to build up and is added to the outstanding balance of the loan. When the grace period ends, borrowers who haven’t made interest payments will owe more than the original loan amount.
To calculate interest you’re charged for a certain period, begin by determining your interest rate factor:
Interest rate factor = Interest rate / Number of days in the year
Now, use your interest rate factor to determine the interest charged:
Interest charged = (Loan balance x Interest rate factor) x Number of days since last payment
To offer an example, let’s assume the borrower had a loan of $10,000 with an interest rate of 5% and a grace period of six months.
At the end of your grace period, it will have been 183 days.
So you’ll start with your interest rate factor:
5% (interest rate) / 365 (number of days in a year) = 0.0136%
Next, multiply that factor by your loan balance:
0.0136% x $10,000 = $1.37
Then multiply that dollar amount by the number of days since your last payment:
$1.37 x 183 = $250.71 charged in interest during your grace period
Where can I find the grace period for all my student loans?
You can find the grace period for your student loans by looking at your loan documents or contacting your loan servicer. Your loan servicer is the organization that collects your loan payments, and its customer service department can answer all your questions about your loan.
If you have a federal loan, you can also find the grace period for your loan by logging in to your Federal Student Aid account. Your grace period should be listed on your loan summary page.
Can I extend my student loan grace period?
In general, no; you can’t extend your student loan grace period.
But what if you don’t have a job yet and can’t afford payments? Both private and federal lenders offer deferment for temporary financial hardship. If you lost your job or have a low income, you may qualify for this deferment.
Federal economic hardship deferment can last up to three years, and you must meet specific requirements, such as one of the following:
- You’re receiving public assistance.
- Your income is no more than 150% of the federal poverty guideline based on your family size and state.
- You’re on active duty in the military. Borrowers with federal loans can avoid payments for the full length of their deployment. Interest won’t accrue on your loan while you’re serving in a hostile area. For other military members, interest is capped at 6% while on active duty.
Can I make payments on my student loans during the grace period?
Yes; while you are in the grace period of your student loan, you can make payments on the loan. Small payments can go a long way in chipping away at your impending debt.
However, it’s important to understand that any payments you make during the grace period are not applied to the principal balance of the loan. Instead, payments during the grace period are often applied to the interest that accrues.
Still, making payments during your student loan grace period can be beneficial for a couple of reasons:
- It can reduce the interest that will accrue. When the grace period ends, any remaining interest is added to the principal balance of the loan, which can be an unwelcome surprise. Making payments during the grace period can help keep the total balance of the loan lower.
- Making payments during the grace period can help you start establishing good credit. On-time payments demonstrate to lenders and credit bureaus that you’re a responsible borrower, which can help boost your score.
What to do before your student loan grace period ends
If you’re not making payments during your grace period, this is the perfect time to start planning how you’ll handle payments when they begin. We recommend doing the following.
Review your loan terms
Before your student loan grace period ends, it’s important to review the terms of your loan.
Your loan documents include information such as the amount borrowed, interest rate, repayment term, monthly payment amount, and due date. Knowing this will help you plan for repayment when the grace period ends.
Make a plan to pay off your loan
Once you know the details of your loan, you can start to make a plan for repayment. Consider creating a budget that takes into account your loan payments as well as your other financial obligations.
If your loan payment is too high to manage, you have time to contact your loan servicer and see if you can switch to a different repayment plan once your grace period is over.
Set up autopay
Automatic payments are an easy way to ensure your loan payments are made.
Plus, many lenders offer an interest rate reduction for enrolling in automatic payments, and you don’t need to log in to the lender’s website to pay your loan on time each month.
Consider student loan refinance or consolidation
If you have a solid credit score and a steady income, you may be eligible to refinance your student loans.
Refinancing can lower your interest rate or extend the repayment term, so it can make monthly payments more manageable. Along the same lines, you may also consider consolidating multiple loans into a single loan with a single monthly payment. (Take a look at our guide to the differences between refinance and consolidation.)
Note that refinancing could also increase the length of your loan. If you don’t have a good credit score, you could also end up with a higher interest rate.
If you consolidate or refinance federal loans into a private loan, you lose benefits such as deferment (including the current COVID-19 deferment), Public Service Loan Forgiveness, and income-driven repayment plans.
Author: Christopher Murray