What You Should Know About Your Student Loan Grace Period

Renee Layberry
May 4, 2021

If you've got federal student loans, you know they generally go into repayment status once you graduate. Even if you drop below half-time status or leave school altogether before you get your degree, you have to start making your monthly payments.   However, you do have a grace period, or a period of time before those payments become due after you've graduated or left school.  This time will hopefully be enough for you to find a job once you’re out of school.   During this time, the federal student loan grace period is expected to end this fall, but as there is an automatic forbearance that is pausing payments to help aid the hurting economy, your first payment won't be due till January 2021. The automatic forbearance also protects your loan from collecting interest during these months similar to how it would during a grace period.   Note: Keep in mind this is just for federal student loans. If you have private student loans, make sure you check with your private lender and acknowledge what their grace period looks like during the pandemic   If you're lost, don't worry, we will walk you through it all in this article!   Below we look at grace periods and how they can benefit you.  

How long is my grace period?

The grace period on your student loans depends on the type of loan you took out and the terms you have requested.
  • Most federal loans, including Direct Subsidized Loans and Direct Unsubsidized Loans, allow for a six-month grace period.
  • A PLUS loan, on the other hand, does not have a grace period – unless you got it as a graduate student. Parents who have a PLUS Loan can request a six-month grace period. This period starts after their child graduates, falls below half-time, or permanently leaves school. Check with your loan servicer to find out precisely what your grace period is.
  • If you were granted a Perkins Loan (before the program expired in 2017), you’ll usually have a nine-month grace period. Since these federal student loans were made by your school, contact your school's financial aid office to confirm your grace period.
  • Student loans from private organizations, such as a bank or student loan company, have all different grace periods. Check with them to see what kind of grace period they offer. In most cases, private lenders do not provide a buffer between when you end school and when you start paying. You'll want to make sure you are ready to start your repayments as soon as they come due to avoid defaulting on your loan.
  brunette woman on her laptop laughing and working Photo by Mateus Campos Felipe

Can I extend my grace period?

Certain situations can affect your grace period. One is if you return to school – after you've left or dropped below half-time – and before the end of your loan’s grace period.   If you re-enroll with at least half-time status, you’ll receive the full six-month grace period when you graduate, leave school, or drop below half-time enrollment.   In some cases, you can request a deferment.    A deferment allows you to temporarily stop making payments on your student loans. However, you might still be responsible for paying the interest that accrues during the deferment period.   There are a number of circumstances under which you may qualify for a deferment on your federal student loan payments. In addition to cancer treatment and economic hardship, these include:
  • Active Military Duty. If you are called to active duty for 30 or more days within your grace period, your loans will be deferred during your active duty time. You'll then get a grace period of six months after you return home.
  • Graduate Fellowship. If you are enrolled in an approved graduate fellowship program, you may qualify for deferment.
  Since March 2020, payments on all U.S. Department of Education-held federal student loans have been suspended due to the coronavirus emergency.   At the same time, interest rates were set at 0%. These measures are currently in force until Dec. 31, 2020.   The full amount of any payments you make on your ED-held loans during the 0% interest period will be applied to the principal, once all the interest accrued prior to March 13, 2020, is paid.  

Should I refinance my loans during my grace period?

If you have private loans, you should consider refinancing to take advantage of lower interest rates.   You will need to have good credit and a steady source of income to get the best rate on your new loan. If you can refinance at a lower rate, that's certainly a smart financial move.   Even if you are planning to forego making any payments until the very end of your grace period, check into refinancing as soon as possible.    Because your loans are still accruing interest during the grace period, getting a new loan at a lower rate of interest will save you money over the long term. You can use the grace period to shop around for a new loan with a better interest rate.   More >> Here are 4 ways to eliminate your debt so you can pay off your student loans quicker   Photo by Hao Pan

Should I consolidate my loans during my grace period?

If you have several federal loans, you might want to consolidate them. Consolidating your student loans is different than refinancing since consolidating is specific to federal loans and there usually isn't much of a difference in interest rates since these are provided by the government at the lowest rates possible.   However, consolidating your student loans can make your life easier for several reasons:
  • You’ll only have one monthly payment to make with the new loan, rather than several to different lenders.
  • The interest rate on your new loan, which is the average of the rates on the loans being consolidated, might work out to be slightly lower depending on what the interest rates were when you first took the loans out.
  • If you set your new monthly payment up on autopay, you'll never forget to make it. Plus, autopay sometimes comes with a small discount on your interest rate.
  • Consolidating your loans can also lower your monthly payments by extending the life of your loan. While that can help you if you’re struggling to meet payments right now, bear in mind that the longer the term of your loan, the more you’ll pay in interest over its life.
  Another way to make monthly payments manageable when you consolidate is by choosing income-driven repayment plans if you qualify.   Keep in mind that consolidating does require you to forfeit your grace period; however, you can do the paperwork during your grace period and delay the final consolidation until your grace period is ended.   More >> Here's how you can consolidate your student loans  

Are there downsides to taking my grace period?

Like all gifts, a grace period comes with strings attached.   In most cases, as mentioned earlier, your loans will continue to accrue interest during that time. To avoid interest capitalization (which means your interest is added onto your principal), you can pay just the interest during your grace period and keep your loan principal from increasing.   A grace period can also lull you into a false sense of security. When you don't have to make regular monthly payments, you can get used to living without budgeting for that extra expense.   If you do take your grace period, plan ahead for those payments. Even if you don’t pay anything on your loans during that time, you’ll accrue some savings as a buffer. Plus you’ll establish the habit of setting aside that amount each month and will be ready to make monthly payments once your grace period ends.  

How to make the most out of your grace period

Now that you know what you know, you understand that paying your student loans as quickly as possible is the best path you can take for getting out of debt.   While you're in this six or so month lull of not paying your loans, consider trying the following tips to maximize your time and money and pay off your loans early.  

Complete your federal student loan exit counseling and ask questions

No one expects you to understand how student loan repayment works the second you graduate from college. Unfortunately, there's no course requirement teaching this.   Take advantage of completing the federal loan exit counseling and being as honest with yourself and your finances as possible.   The most important step you can take in your financial future is knowing where your finances stand. And knowing where your finances stand starts with asking the right questions and getting the right answers.   You're much better off doing this during your grace period while you still have time to come up with a plan instead of waiting a few days until your first student loan payment is due  

Make monthly payments regardless of whether they're due or not

We learned about interest capitalization when your interest is added to your balance and it too accrues interest. So while you are in your grace period, consider paying a minimum monthly payment to prevent this from happening.   Depending on the size of your loans as much as $25 a month could make a significant impact when your loans become due.   The good news is, this is not required so if there ever is a month where you can't swing the payment you personally committed to, you're not legally committed to making that payment so there's no harm no foul.   This also gives you the added benefit of continuously reminding yourself and building the habit that sooner or later you will have to pay back your student loans. Starting sooner rather than later will not only help you strengthen that habit, but give your more financial security and confidence as you continue to pay off your loans.   More >> Financial habits you can build in your 20's that will reshape your financial future