A grace period is one term that’s provided for student loans that allow you to delay payments up to a certain length of time, without penalty. During a grace period no late charges would apply, and the loan would not risk falling into default for missed payments. The grace period allows you time to find financial stability prior to having to make payments on your student loans.
How Long Is My Grace Period?
Your grace period length will be determined by what type of loans you have. You will need to know whether your student loans are federal or private, as well as what type of loans they are and with which lender. Both federal loans and private loans may have a grace period. If your loan has a grace period, you become eligible for it either after graduation or after you leave school or drop below half-time enrollment. Your grace period is also available to you for up to three years after graduating or leaving school, and can be used at any time during those three years.
Grace Period & Interest Accrual By Loan Type
|Loan Type||Grace Period Length||Interest Accrues?|
|Subsidized Direct||6 months||No|
|Unsubsidized Direct||6 months||Yes|
|Subsidized Stafford||6 months||No*|
|Unsubsidized Stafford||6 months||Yes|
|Perkings Loans||9 months||No|
|Parent Plus & Graduate||None||Yes|
|Private Loans||Depends on Loan||Usually, yes.|
*Subsidized Stafford loans taken out between July 1st 2012 and July 1st 2014 will have interest accruing during a grace period. Any other years would not.
Accruing Interest While In Grace
Interest accrues for certain loans while in a grace period, and in others the government subsidizes the loan and pays the interest during a grace period. The table above can help you determine whether your loans would or would not accrue interest. If you are considering applying to use your grace period because of a financial hardship, you may want to consider the revised pay as you earn payment plan(REPAYE). This payment plan will give you a payment based on 10% of your discretionary income, but also does a better job of getting interest forgiveness than a grace period. While enrolled in the REPAYE plan, your first three years of unpaid interest does not accrue, and 50% of your 4th year of unpaid interest.
Your Grace Period Can Be Subject To Change
There are three circumstances which could change your grace period length.
- Military Duty – If you are called to military duty within 30 days of your grace period expiring, you will receive the full 6 months when you return from active duty. So this can extend your grace period for another full 6 months.
- Returning to School – If you return back to school as at least a half-time student prior to the expiration of your grace period, you will be provided an additional 6 months once you graduate or leave school.
- Consolidation – Loan consolidation will early terminate any grace period you have remaining on your student loans and be subject to the grace conditions on the new loan.
It’s worth considering that while a consolidation may terminate your grace period prematurely, you may not need a grace period if selecting an income driven repayment plan under a consolidation. We find that often people use the grace period when they cannot find work and have no income, but in that scenario you may be better off in an income driven repayment plan which can not only provide you with a $0 monthly payment, but that $0 payment would count as an actual payment on your loan to dimish the term and offer forgiveness benefits.
How Does The Grace Period Work With Private Student Loans?
In the world of private student loans, there is no standard for a grace period. Some lenders may offer grace periods for certain products or student loan types they offer, and some may not. If you are applying for a refinance of your student loans and the grace period is something that is important to you, then you will need to double and triple check with the private bank you plan on borrowing from. If making regular on-time payments is an issue for you, or something you think may become a problem in the future, we highly suggest not refinancing federal loans and converting them into private loans or you will lose your income driven repayment plan options.
Other Options Instead of a Grace Period
If your student loans are federal, the government has got your back. As we talked about above, the government has multiple federal student loan repayment plans that are designed around borrowers ability to make their student loan payments. There are a few repayment plans which allow a borrower to make a student loan payment equal to only 10% of their discretionary income, and can even provide for a payment of $0.00/mo. This payment counts as a qualifying payment not only for loan forgiveness but for your loan term. We highly suggest that anyone who is in need of a grace period should also review our repayment plans page and see if any of them could help alleviate the burden of a student loan payment during hard times.
If you are no longer eligible for a grace period, you can consider a deferment of forbearance. Both will help postpone payments so you do not fall into default, but may not be a better option that some of the income driven repayment plans.
Don’t Take The Grace Period If You Don’t Need It
The grace period is designed to give people time to steady their financing before they start having to make payments on their student loans. If you have a stable income right out of college, it’s in your best interest to start paying down the loan as quickly as you can, especially if your grace period accrues interest. Student loans can and do follow people for their whole lives, and the ones that find success with their student loans are the ones who are aggressive about paying them off as fast as possible. We suggest that you not only avoid taking the grace period if you do not need it but paying even more towards the loan to pay down the balance as fast as possible. Student loans have a pretty high-interest rate in today’s market, and they are not something you want to carry around with you for too long, if not necessary.
Some student loans offer a grace period, and its wise to use it if and when needed. That’s why its there for you, after all. It’s also wise to know your other options which may benefit you more than a grace period. That may be paying down the loan as fast as possible, or applying for an income driven repayment plan during hard financial times. Everyone has a different situation and you need to consider your own accordingly. If you want to contact your lender to inquire about your grace period, the government has provided a list of contact numbers.