When it comes to student loans, the grace period is aptly named. It’s the time between leaving school and when your student loans payments begin - a period when borrowers don’t have to make payments. Servicers do this because they know borrowers need a little time to get a job and get their finances on track post-graduation in order to fulfill their repayment obligations.
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Pretty gracious of your student loan servicer, isn’t it?
Well, yes, but it isn’t a free ride. There are many details surrounding the student loan grace period that, as a borrower, you need to become intimately acquainted with before your time period lapses.
What is the grace period for student loans?
The length of your grace period depends on the type of loan you took out, which is why it is important to pay attention to the fine print. Many students take on both federal and private loans, which can come due at different times, so keep a log of what you’ll need to pay and when.
- Federal Loans: Both subsidized and unsubsidized federal student loans offer a six-month grace period. The exception is Federal Perkins Loans, which offer grace periods of up to nine months.
- Federal Parent Loans: Six months of grace period are provided, but you have to request it on the application. The difference here being that your parents already have a job, so technically they can begin repayment at any time.
- Private Loans: Grace periods vary by lender, and many don’t offer a grace period at all. This is why it is important to read the terms of your loan prior to signing paperwork and taking the disbursement.
Leaving school before graduation or dropping to part-time status can also kick start the grace period. Check the terms of your loan or visit with your campus financial aid office before making any changes to your enrollment.
How can I stay ahead during the grace period?
The most important thing to know about student loan grace periods is that with most loans (including some federal unsubsidized ones) your loan is still racking up interest during the grace period.
The best way to keep ahead of your loans, payments, and interest during the grace period is to continue making payments. Every little bit helps offset interest, plus you’ll get into the habit of making a monthly payment.
If you are financially unable to make payments during the grace period, at least use the time to familiarize yourself with your repayment system, enroll in autopay (if applicable) and set up your post-school monthly budget. This way, you’re less likely to miss a payment when the grace period is over.
Can I extend the student loan grace period?
There are a handful of ways to extend your grace period:
- Going back to school or out on active military duty: If your status as a student changes before the six-month grace period is over you are able to “reset the clock.” This means you won’t have to make payments while in school or on military leave, and you’ll get to take any remaining portion of your grace period once you’re out of school again.
- Debt consolidation: When you consolidate your debts into a new loan, you’ll no longer have to contend with the grace period requirement on your old loans. New loans do not come with another grace period, but there is typically a 1-2 month window in between disbursement and the first loan payment.
- Forbearance: If you are having trouble finding a job or are experiencing other extenuating circumstances that prevent you from paying back your loan once the grace period ends, talk to your servicer. There may be other programs available to you (such as deferment or loan forbearance) that can help, but you have to communicate with your servicer and ask about these programs.
Keep in mind; grace periods aren’t an interest-free graduation gift from your loan servicer. Any time you stop making payments, you will have to contend with extra interest on the loan balance. Depending on how large your student loan is, the amount can be considerable, so it’s important to carefully consider how the grace period can impact your finances.
For most, this window is a welcome break and a time to organize the repayment strategy before active payback begins.