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Understanding Student Loan Grace Periods and Repayment Strategies

Graduating from college is a significant milestone, but it also marks the beginning of student loan repayment for many. Thanks to student loan grace periods, students are typically not required to start making student loan payments immediately after crossing the graduation stage. A student loan grace period is a set number of months before your first loan payment is due after you leave school. In this article, we will explore which types of loans have a grace period, how interest works during this period, and effective strategies for repaying your student loans.

Do Student Loans Have a Grace Period?

The grace period for student loans varies by loan type. For federal loans, the grace period is typically six months, while private student loan grace periods can vary by individual lender.

Federal Student Loan Grace Periods

The payment grace period for federal loans starts when a student graduates, withdraws from school, or reduces coursework to a level that’s below half-time enrollment. Below are the grace periods offered for federal student loans:

• Direct loans: Six months
• Grad PLUS loans: Six months
• Parent PLUS loans: Six-month deferment upon request
• Federal Perkins loan: Nine months

Private Student Loan Grace Periods

Conditions for private student loan grace periods differ from one lender to the next. Some lenders may offer a grace period of six to nine months; others might require payments while you’re in school.

Do You Pay Interest During the Grace Period?

For student loans that have grace periods, you are not required to make interest or principal payments during the grace period. Importantly, however, interest may still accumulate during the grace period and be added to your balance, or capitalized, if you don’t pay it before your first loan payment is due. Making at least interest-only payments even when it’s not required can save you a significant amount of money over the life of your student loans.

Subsidized Student Loans

With federal subsidized student loans, the U.S. Department of Education covers the interest on your loans until the first payment is due. This means you will not pay any interest on your subsidized loans until after your grace period ends. If you took out $20,000 in subsidized student loans, then that is the total you’ll owe when you begin making payments. After that point, interest will begin to accrue.

Unsubsidized Student Loans

With federal unsubsidized student loans, interest starts accruing immediately when you take out the loan. Borrowers must pay all the loan interest, including interest that accumulates during periods of deferment and grace periods. You’re not required to make interest payments on federal unsubsidized loans until the grace period ends, but any unpaid interest charges are capitalized, or added to your total loan amount. Making interest-only payments while you’re in school or before your grace period ends can save you a lot of money when repaying your loans.

Private Student Loans

Interest typically begins accruing on private student loans when you receive the funds. Your lender may allow you to defer payments until after leaving school and after any grace period if it offers one. Keep in mind, though, it will add any unpaid interest to the loan balance once the grace period ends. As with unsubsidized federal student loans, paying all or as much loan interest as possible before the grace period ends will give you significant cost savings.

How to Repay Your Student Loan

When it’s time to start repaying student loans, the following tips can help you pay down your balances and make payments manageable.

Prepare for Loan Payments

Several months before your loan grace period is set to end, check your loans to review terms, minimum payments, and due dates. Next, review your monthly income and expenses to figure out how payments will fit into your budget.

Set Up Automatic Payments

Scheduling autopay for loan payments is a way to avoid paying late. If you leave school with limited credit history, paying student loans on time can give you a running start on establishing good credit.

Pay More Than the Minimum

Minimum payments are all that’s required to keep student loans in good standing, but focusing extra payments on graduate loans and other loans with higher interest rates could help you pay off student debt faster.

Defer or Forbear if Necessary

If you’re not ready to make student loan payments when your grace period expires, you could consider pausing payments by applying for student loan deferment or forbearance. Note that interest does not accrue on subsidized loans during a deferment but does accrue on subsidized loans during forbearance. For unsubsidized loans, you are always responsible for paying interest, including when you qualify for a deferment and if you seek forbearance.

Contact Your Lender if Money Gets Tight

It’s better to contact lenders before falling behind on loan payments because you may be able to work out a payment plan. Federal student loans, for example, offer income-driven repayment plans that can set your payment based on how much you’re earning. This can make payments more manageable when your income is low, or you have trouble finding work.

See if You Qualify for Student Loan Forgiveness

People who teach or work in public service for several years may be eligible for federal loan forgiveness programs, such as Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF). If you work for the government or a not-for-profit organization, consider reviewing program conditions and learn how to certify employment annually to get your balance forgiven after making the required number of loan payments.

The Bottom Line

Federal loan grace periods are generally six months, giving you some time to find a job before payments are due. Since private student loan grace periods vary, check with your lender before leaving school to find out when you’ll have to start paying down student debt.

It’s important to know when to start making student loan payments since missed payments can show up on your credit report and negatively affect your credit score. If you’re ever curious about what’s on your credit report, you can get your Experian credit report and score for free to help you verify credit account records and monitor score changes.

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